Ukrenergo reaches agreement on $825 mln eurobond debt management
Ukrenergo reached an agreement on the terms of a debt management transaction under state-guaranteed "green" sustainable development bonds for the amount of $825 million with a rate of 6.875% per annum and a maturity date of 2028 with an ad hoc group of bondholders representing approximately 40% of the total nominal value of outstanding bonds, and bondholders outside the ad hoc group, who together represent more than 45% of the total nominal value of outstanding bonds.
Ukrenergo announced that a debt management operation, expected to conclude in early July 2025, will include an invitation for bondholders to participate in a buyback and/or exchange offer involving new debt securities issued by Ukrenergo.
According to the company, the buyback option involves raising $430 million on international capital markets under financing guaranteed by a development finance institution. These funds will be used to finance the buyback of bonds through a non-modified reverse Dutch auction, with a maximum price set at 65.125% of the bond's face value, plus accrued and overdue interest as of the closing date.
On Monday, Ukrenergo's eurobond prices dropped by 3.47% to 68.81% of face value on the Frankfurt Stock Exchange.
The company stated that if demand exceeds the available limit, bonds tendered at the maximum price will be accepted on a pro-rata basis. Any bonds tendered but not accepted for buyback will be included in the exchange offer.
Under the exchange option, bondholders will be invited to swap their bonds for new unsecured Ukrenergo bonds maturing in 2031. These new instruments will carry an annual coupon rate of 8.5%, with semiannual repayments beginning in June 2028. The repayment schedule includes 10% of the principal in each of the first four installments (June 2028 to December 2029) and 15% in each of the last four (June 2030 to December 2031).
Bondholders who agree to the voluntary exchange will be eligible to convert their holdings at a 1:1 ratio, factoring in accrued and overdue interest. However, bonds not voluntarily tendered for buyback or exchange may be subject to a 20% discount if exchanged later within the scope of available funds after the buyback.
If the total volume of tenders in the buyback option falls short of the $430 million limit, the remaining funds will first be used for a pro-rata buyback of bonds that were not voluntarily tendered for buyback or exchange, at 60% of face value. Any leftover funds will then be used to buy back bonds from voluntary exchange participants at a price equal to the lower of:
a) 68.7% of the nominal value plus accrued and overdue interest as of the closing date, or
b) the price that ensures Ukrenergo's weighted average total repurchase cost remains at 67.125%, accounting for both voluntarily and involuntarily tendered bonds.
Additionally, every bondholder who participates in either the buyback or exchange is deemed to have voted in favor of a consent solicitation regarding certain proposed amendments to the bond terms and the state guarantee. Completion of the consent solicitation is a prerequisite for securing the development finance institution's guaranteed funding required for the buyback.
"Therefore, neither the buyback nor the exchange offer will proceed unless the proposed amendments under the consent solicitation receive the required level of bondholder approval," Ukrenergo said.
The quorum for the bondholder meeting is set at two-thirds of the outstanding bond value, with approval requiring 75% of those present.
Incentives include a 2% nominal value premium if the full $430 million is tendered for buyback and 10% if a lower volume of bids is received or in the case of a bond exchange.
Acting Chairman of Ukrenergo, Oleksii Brekht, called on all bondholders to support the upcoming debt operation, emphasizing that the restructuring would enable the company to prioritize critical reconstruction and recovery efforts, making Ukraine's power system more resilient and reliable.
"I am pleased that an agreement was reached on a voluntary and mutually beneficial bond restructuring. I want to thank the Ad Hoc Group and VR Capital for their constructive collaboration and the compromise achieved," Brekht said.
Richard Deitz, President of VR Capital Group and a member of the Ad Hoc Group, noted that the agreed terms strike a balance between the legitimate commercial expectations of bondholders and Ukrenergo's need for capital investment to maintain the delivery of essential services across Ukraine.
"These terms are the result of prolonged and good-faith negotiations between Ukrenergo and the Ad Hoc Group. The group believes the agreed framework will gain wide bondholder support and looks forward to a successful consent solicitation," Deitz said.
Ukrenergo was advised by White & Case LLP and Rothschild & Co, while the Ad Hoc Group was advised by Cleary Gottlieb Steen & Hamilton LLP.