DTEK officially initiates Eurobond restructuring till 2024

Ukraine’s leading coal and utility holding DTEK Energy (DTEKUA) has scheduled for Dec. 19 a scheme meeting for its Eurobond holders to approve the recently proposed long-term debt restructuring, the company reported on Dec. 5. As earlier announced, DTEK will issue a single note maturing in December 2024 to exchange for USD 894.8 mln of existing notes outstanding, as well as accrued and unpaid interest on the notes. Some of the bank lenders also will be allowed to swap their loans into new notes, at a total value of no more than USD 300 mln.

The new notes will have a 10.75% coupon rate, with coupons payable quarterly in cash and PIK. The minimum cash amount to be paid will be: 5.5% in 2017 and 2018, 6.5% in 2019, 7.5% in 2020, 8.5% in 2021, and 9.5% in 2022 and 2023. It will be 10.75% in 2024. The unpaid amount will be capitalized quarterly, paying interest.

DTEK Energy is planning to repay 50% of the bonds outstanding (including the capitalized amount) on Dec. 29, 2023, and the rest on Dec. 31, 2024. It may also repay the bonds earlier, at a price of 105.375% of par before end-2019, 104.031% of par in 2020, 102.688% of par in 2021 and at par after 2021.

DTEK Energy will pay a 0.75% restructuring fee to all noteholders, in case the restructuring is approved. It will also pay a 0.5% “lock up” fee to the holders of “locked up” notes as of Dec. 15 who will vote in favor of the scheme by Dec. 16.

DTEK will be also obliged to limit its CapEx by certain amounts in USD and hryvnia, in a range of about USD 430-480 mln in 2017-2020 and about USD 560-690 mln in 2021-2024. It will also be limited in paying dividends unless its net debt-to-EBITDA is below 1.5x and after-dividend cash balance is more than USD 110 mln.

Alexander Paraschiy: The announced restructuring offer is no surprise and we expect it will be approved by bondholders on Dec. 19. DTEKUA Eurobonds trade at about 81.3% of their par, the highest levels since July 2014, and still look attractive, in our view. Based on the announced restructuring terms, and assuming cash coupons will be paid on their minimum levels, the bonds offer a 14.5% yield to their maturity, which is a 520 bps spread to the sovereign curve. Our view on the bonds remains bullish.