ULF allegedly offers 50% principal cut, ~70% coupon cut, 8Y+ extension

Ukrainian largest farming holding Ukrlandfarming (URKLAN) and its subsidiary Avangardco (AVINPU, AVGR LI) are offering heavy restructuring terms on their Eurobonds, which mature in 2018, Bloomberg reported on May 30 citing “a person familiar with the matter.” According to the source, Ukrlandfarming is offering a 50% principal cut on its USD 543 mln notes, a reduction of the coupon rate to 2.5% (from the current 10.875%) and a nine-year maturity extension. Avangardco’s USD 214 mln notes are subject to a 50% principal haircut, a coupon decrease to 3.0% (from 10.0%) and an extension of maturity of eight years. Representatives of the issuers and noteholders declined to comment on such a restructuring proposal, according to Bloomberg.

The notes of Ukrlandfarming and Avangardco are in default now as the companies failed to pay their March/April coupons on time. In a recent interview with Interfax-Ukraine, the owner of Ukrlandfarming Oleg Bakhmatyuk expressed his hope of reaching some progress on debt restructuring talks in 1.0 – 1.5 months.

Alexander Paraschiy: The offer looks more like a wish by Bakhmatyuk – it is hard to believe that such a distressed offer will be approved by ¾ of Ukrlandfarming and Avangardco bondholders. At the same time, it is fully in line with our previous estimates that NPV of cash flows from UKRLAN and AVINPU notes will be 11-14 cents per dollar, assuming a 25%-20% discount rate (refer to our August 2016 note on Ukrlandfarming).

We believe the bondholders will be able to agree on slightly better restructuring conditions, and we also suggest them to insist on their higher control over the companies’ operations. As we wrote before, the restructuring talks should include a detailed audit of past operations of Ukrlandfarming, the inclusion of creditors to the companies’ boards and/or their power to limit (or control) the holding’s CapEx, a simplified corporate structure, and more transparent reporting practices.