Metinvest announces final restructuring proposal

Ukraine’s largest steelmaker and iron ore miner Metinvest (METINV) published the final restructuring terms of its Eurobonds on Dec. 23 that, in general, repeat the terms published on May 25. The holding reported that the holders of about 50% of the notes have preliminary agreed to support the restructuring terms. The meeting to vote for the offered terms has not yet been scheduled – the holding reported it will take place after Jan. 17, when a U.K. court will hold a hearing to initiate the deal.

According to the terms, the holding’s three Eurobond issues – maturing in 2016, 2017 and 2018 – will be reorganized into a single note maturing on Nov. 18, 2021.

The new bonds will pay 10.875% coupon in cash quarterly starting Nov. 18, 2018. Before that, they will pay coupons in cash and PIK, including: 1) a minimum 2.793% cash coupon, 2) a PIK coupon of 6.5795% (paid in cash or capitalized to be repaid as soon a possible), and 3) a “catch-up” coupon of 1.5025% (paid in cash, otherwise not capitalized).

All the amounts that exceed cash coupons are only payable if unrestricted cash amounts at Metinvest accounts exceed USD 180 mln. The first coupon will be paid on May 18, 2017.

A restructuring fee of 0.75% will be payable to all creditors on the date of the restructuring, and an additional 0.75% fee will be payable to creditors who join the “lock up agreement” by Jan. 16, 2017.

Andriy Perederiy: It’s a slight disappointment that Metinvest spent more than seven months in negotiations with creditors and did not offer any better restructuring terms than what was offered in May.

We are also disappointed that the coupon payment as offered by Metinvest remains too complicated to forecast. In any case, we deem the expected soon finalization of Metinvest’s debt restructuring as a positive catalyst for its bonds.

Based on the current prices of METINV bonds, they offer an average yield to their ultimate maturity of 13.0-13.5% (depending on the firm’s ability to pay cash coupons), or a 460-510 bps spread to the sovereign curve.