UkrLandFarming and Avangard proposed creditors a new round of restructuring

UkrLandFarming (ULF) and Avangardco have asked their creditors to accept substantial debt and interest rate cuts to accommodate future debt service from the Ukrainian companies’ cash flows, according to two information statements from the Oleg Bakhmatyuk-owned businesses on agent DF King’s website. The proposals would leave the companies with no principal repayments until 2022.

Latifundist.com was provided with the relevant materials by Reorg Research, which specializes in information on problem assets.

ULF proposes to write 50% off the December 2016 balance on its USD 500 million bonds, spread out the repayment profile with the first 10% amortization in 2022 and the last in 2027. Under the proposal, the semi-annual cash coupon would shrink to 2.5% from 10.875%.

The company stresses that its unsecured foreign creditors and export credit agencies should have equivalent restructured NPV recoveries. This would be achieved by giving the trade finance banks a relatively lower debt cut compared with the bonds.

The proposal features a shared recovery element for the noteholders. On the first anniversary after the Net Debt / EBITDA ratio falls below 3.0x, the principal amount, the coupon and the maturity of the notes shall increase and the amortization schedule for the bonds shall be amended to add another USD 54 million 5-year tranche with a 5% cash coupon. The existing security and group company sureties remain the same.

UkrLandFarming bases its debt restructuring plan on the following cash flow projections:

The presentation states that additional cash earnings sweep would provide potentially faster repayment of all foreign creditors pro-rata to their outstanding amounts. The company added that the details are still do be determined.

Regarding its other foreign loans, ULF proposes to reinstate between 60%-65% of the principal as of December 2016 and cut the remaining 35%-40% off. The amortization profile would be stretched out to 2027 with the first repayment in 2020. Cash interest on the dollar-denominated loans is suggested to be 2.5% and the euro loans would be capped at 2.5%.

UkrLandFarming’s main economic terms are summarized below:

ULF’s egg producing subsidiary Avangardco proposes to write 46% off the December 2015 principal amount on its 2018 bonds reinstating USD 110.9 million. An amortization schedule would be introduced with even semi-annual 10% repayments each year commencing in 2023 until 2027. The coupon would be reduced to 3% from 10% in 2017-2019, stepping up to 4% in 2020-2021 and 5% in 2022-2027.

Under the plan, EUR 44.1 million of the EUR 74.6 million bank loans would be reinstated, equivalent to a 31% haircut, and extended to 2027. The amortization schedule would be kicking in 2024 with 5% semi-annual repayments increasing to 25% in 2026 and 55% in 2027. The interest rate is proposed at Euribor+ 2% uniform rate compared with the current Euribor+ 2% blended rate.

The plan relies on the company’s projected 10-year free cash flow which would enable it to service and fully repay the debt. Avangardco will make no principal repayments until it has accumulated stable minimum cash liquidity of USD 20 million, which is expected to happen in 2022.

Similar to the ULF proposal, the unsecured foreign creditors and export credit agencies will have equivalent restructured NPV recoveries. For Avangardco this is approximately 35%. This will be achieved by imposing the trade finance banks with a relatively lower haircut compared with the bonds.

Avangardco’s deal includes a shared enterprise value recovery mechanism. On the first anniversary after the Net Debt / EBITDA ratio falls below 3.0x, the principal amount, the coupon and the maturity of the notes shall increase and the amortization schedule for the bonds shall be amended to add another USD 22.18 million 5-year tranche with a 5% cash coupon.

Management said a cash sweep would speed up the repayment of foreign debt, but noted that the definitions for permitted cash use are still being determined. The existing security and group company sureties remain the same as under the current Avangardco bond.

Latham & Watkins and Ziff-Ivin advise the company and Hogan Lovells and EY are working with the ad hoc bondholder group.