DTEK offers 6M standstill, sheds light on LT restructuring offer

Ukraine’s leading coal & power holding DTEK (DTEKUA) has initiated a standstill scheme that will allow the holding to agree on the long-term restructuring of its debt till Oct. 28, 2016. The court hearing to initiate an English scheme of arrangement will be held today. During the standstill period, DTEK would pay 10% of its accrued coupons on Eurobonds monthly starting May 31. Unpaid coupons will be capitalized, but will not bear interest. On top of that, DTEK may repay more overdue interest to bondholders and debtors if its end-month cash balance will exceed USD 110 mln. During the standstill, DTEK will limit its CapEx to USD 30 per month and will be obliged to report monthly on its operations and quarterly on its financials and working capital.

DTEK also shed some light on proposals on long-term restructuring that it has already provided to banking creditors and representatives of an ad hoc bondholder committee: 1) no haircut on debt; 2) extension of ultimate maturity up to end-2023, with “some contractual amortization schedule, including a sizeable balloon repayment at maturity”; 3) faster repayments (excess cash flow sweep) if DTEK’s cash position allows for it; 4) reduced interest payment with a compensation of the decrease via value-recovery instruments; 5) limits on dividends and additional indebtedness.

If today’s court decision is in favor of DTEK, its bondholders will be asked to vote by April 22 in favor of the scheme, offering a consideration payment to its holders equal to 0.25%. A bondholder meeting to approve the scheme has been scheduled for April 25 and needs approval from at least 75% of the holders of both notes under consideration.

Recall, the holding missed two coupon payments on its Eurobonds in the last two weeks, worth about USD 37.8 mln.

Alexander Paraschiy: As we expected before, DTEK is going to offer some reduction in its earliest coupons and a maturity extension on all its debt, while it does not seek a haircut of its principal. Thus far, the bondholder’s committee reaction to the standstill proposal is not available. We expect it will agree in order to have more time to arrange more detailed restructuring conditions.

The holding’s fundamentals seems to have improved in 1Q16, as it managed to boost its coal mining and secure self-sufficiency in anthracite coal. It has also begun to enjoy better prices for electricity produced by its coal-fired power plants (prices are up 21% yoy in 1Q16, we estimate). All this suggests the company has a good chance to restore its solvency in the future, but at the same time liquidity issues remain.

Thus far, we remain optimistic  about DTEK’s prospects to service its debt in the mid-term.