Eurobond holders allow Naftogaz to restructure its debts

Ukraine’s national fossil fuel company, Naftogaz, received investor approval to restructure its Eurobond debt for Eurobonds maturing in July 2022 and November 2026, the news agency Interfax-Ukraine reported on July 28.

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In the case of the 2022 bonds, the quorum at the meeting was 87.72%, while the number of votes in favor was 100%. The numbers for the 2026 bonds were 91.33% and 99.72%, respectively, the agency wrote.

"Thus, the extraordinary resolutions for the 2022 and 2026 bonds have been approved," Naftogaz reported at the meeting.

At the request of the borrower, the issuer will publish an additional announcement after the transaction is completed.

Naftogaz announced the start of a vote to obtain investor approval for the restructuring of Eurobonds debt on July 13. It was expected to be completed by the end of July.

The agreement to restructure the two defaulted Eurobond issues by the end of July was reached at the end of May 2022, for a total of $375 million due on July 2022 and $500 million due in November 2026. The agreement has some improvement in terms for bondholders compared to the March 10 offer.

According to the terms published on the market, the main changes include some tightening of covenants, cash payment of the last semi-annual coupon in the two-year deferral period, creation of a 2026 interest payment fund, and the introduction of a restructuring fee, but without any details provided.

The deal foresees a postponement of 50% of the principal payment under the 2022 Eurobonds for two years - until July 19, 2024, and the remaining 50% - until July 19, 2025.

The agreement has also remained unchanged in regard to the 2026 Eurobonds: 50% for a year, until Nov. 8, 2027, and another 50% until Nov. 8, 2028, as well as payment of a 0.5% premium on the principal amount for consent.

Naftogaz proposed raising the interest rate on the 2022 Eurobonds from 7.375% to 7.65% per annum, which corresponds to the rate on the 2026 Eurobonds, and to pay 5% of the principal amount of the debt along with overdue interest. The same was proposed in March.

The company also wanted to retain the right to decide whether to pay interest for the two-year deferral period or to capitalize it, except, as noted above, for the last coupon: for the 2022 Eurobonds - from January 19 to July 19, 2024, and for the 2026 Eurobonds - from May 8 to November 8, 2024.

A new proposal is to accumulate funds for interest payments on the 2026 Eurobonds: one coupon of $19.06 million or the equivalent in UAH on the effective date of the restructuring, then $3 million on Jan. 15 and Feb. 15, 2024, and another $13.06 million on March 31, 2024.

A new proposed covenant was to limit new debt to $500 million by July 19, 2024, and to mature after the Eurobonds in 2026, with quarterly reports on the maturation, as well as to more actively involve the supervisory board in approving new borrowings and asset sales.

Naftogaz clarified that such covenants will also benefit the holders of the 2024 Eurobonds for EUR 600 million, the only ones who agreed to a two-year deferral last year.

The 2022 Eurobonds' terms of the restructuring were agreed upon with a special committee represented by Cleary Gottlieb Steen & Hamilton LLP and through negotiations led by VR Advisory Services Ltd.

In the case of the 2026 Eurobonds, the terms were agreed with a special committee represented by Hogan Lovells LLP, but in both cases it was not specified what share of the owners the committees represented.

Lazard is the exclusive financial advisor to Naftogaz, who assisted in paying $1.5 million on the request of the National Bank. Freshfields Bruckhaus Deringer and Aequo are legal advisors of the company.

The Cabinet of Ministers agreed on the terms of the restructuring of Naftogaz's Eurobonds by Resolution No. 554-p of June 24, 2023.

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