Ukraine concludes historic restructuring of US$20.5 billion of international bonds
3 min read
On 3 September, 2024, Ukraine announced that it successfully concluded the restructuring of approximately US$20.5 billion of Ukraine's international bonds and the sovereign-guaranteed debt obligations of the State Agency for Restoration and Development of Infrastructure (Ukravtodor), exactly three months from the date Ukraine first entered into restricted negotiations with the representative bondholder committee. The comprehensive debt restructuring follows Ukraine's successful two-year debt payment deferral effected in 2022.
Critical debt relief
The terms of the restructuring include an 37% upfront principal haircut, as well as significant coupon reductions and maturity extensions, which in the aggregate, reduce Ukraine's debt stock by more than US$8.5 billion and Ukraine's debt service payments by more than US$22 billion until 2033.
This debt relief – which is one of the highest in recent history – will contribute to Ukraine's macroeconomic stability and allow the government to divert substantial budgetary resources to fund extraordinary social, economic and defence needs caused by Russia's full-scale invasion.
Implementation of the restructuring
The restructuring was implemented by way of an exchange offer and consent solicitation to the holders of Ukraine's 13 series of Eurobonds and the holders of Ukravtodor's bonds, which was launched on 9 August, 2024 and expired on 27 August, 2024. The transaction implemented the terms of the agreement in principle reached between Ukraine and the representative bondholder committee – comprising some of the world's largest asset managers and other long-term investors in Ukraine – which was announced on 22 July.
Terms of the restructuring
Pursuant to the transaction, the existing bonds of Ukraine and Ukravtodor were exchanged for four series of Step Up A bonds and four series of Step Up B bonds. The Step Up A bonds pay interest at rate of 1.75% beginning in February 2025, which gradually increases to 7.75% after 2034, while the Step Up B bonds pay interest at 3% starting in August 2027, which gradually increases to 7.75% after 2034.
The terms of two series of the Step Up B bonds, due 2035 and 2036, also include a novel feature providing for upward adjustments to the principal amount of each series on 1 February 2030, upon the satisfaction of certain conditions linked to the performance of Ukraine's nominal gross domestic product in 2028, measured against the IMF projected nominal gross domestic product for 2028 and with a further control variable relating to the performance of Ukraine's gross domestic product at constant prices for 2028. This upward adjustment, which would be triggered if Ukraine's economy outperforms IMF expectations, would permit bondholders to recoup up to 12% of the principal haircut they provided in the restructuring.
Creditor coordination and support from all stakeholders
The debt restructuring was ultimately completed with the strong support of all major stakeholders. The terms of the restructuring were confirmed by the IMF staff as compatible with the debt sustainability objectives of Ukraine's $15.6 billion Extended Fund Facility (EFF). They were also endorsed by Ukraine's international partners in the Group of Creditors of Ukraine, who will be providing their own debt relief not later than the end of the EFF programme period in 2027. Crucially, more than 97% of holders of Ukraine's and Ukravtodor's existing bonds participated in the exchange offer and consent solicitation, indicating the strong support of the private sector for Ukraine's efforts to restore macroeconomic stability and fund its continued defence against the Russian aggression. Such swift and effective coordination between the multilateral sector, the official sector and the private sector is unprecedented in recent sovereign debt restructurings. Ukraine's successful operation demonstrates that the current sovereign debt restructuring architecture is capable of delivering substantial and timely debt relief when the ultimate objectives of key stakeholders are aligned and the needs of the distressed sovereign debtor are prioritized.
White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.
This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
© 2024 White & Case LLP
