DTEK seeks to trade 2015 notes for 20% cash & 4Y bond,warns of default

Ukraine’s leading energy holding DTEK (DTEKUA) announced on March 23 its exchange offer for its USD 200 mln notes maturing on April 28. DTEK seeks to exchange its existing notes for 20% in cash and the rest in new notes maturing in April 2019. The new notes will have a coupon rate of 10.375%, compared to 9.5% for the existing notes. The company is also offering a 2% early instruction fee for those who will accept the offer by the April 8 deadline. The final deadline for accepting the holding’s offer is April 22. The holding will only pursue the exchange if at least 85% of bondholders accept the offer, and this minimum condition is not subject to revision.



Concurrently, DTEK said it’s initiating another process that it’s calling “the scheme.” Under the scheme, DTEK is seeking to force all the holders of 2015 notes to exchange them into 2018 notes. This will demand court authorization and approval from the holders of 75% of the nominal value of the 2015 notes (or, alternatively, half of the total bondholders).



DTEK is free to choose whether to pursue the exchange offer (if the 85% minimum condition is satisfied), or to go under the scheme (if all the necessary decisions to open this process are made). There is no difference between the two options for those holders who will agree on the exchange (for each USD 1,000 of their existing notes, they will receive USD 200 in cash and USD 800 in new notes, plus USD 20 in cash if they file their consent by April 8 deadline). Those bondholders who chose not to accept the offer will either receive the 20%/80% set of cash and new notes, if DTEK chooses to pursue the scheme, or their existing notes will be redeemed at their maturity, if DTEK pursues the exchange offer.



The third scenario explicitly considered by DTEK – if the 85% condition for the exchange offer is not met and there is no ability to pursue the scheme – is not paying for its 2015 notes at all. “The holders would likely be left with a default of existing notes governed by English law,” DTEK explained.



Alexander Paraschiy: The way DTEK has presented its exchange offer leaves little choice for bondholders as taking the exchange offer seems to be the most efficient way to deal with the 2015 paper. At the current price at 60% of par, accepting the offer by the early deadline provides an IRR at 46%, we estimate. Notably, accepting it after the early deadline reduces the deal’s IRR to 43%. By ignoring the offer, note holders would gain the possibility of getting their notes repaid on maturity (allowing to generate over 700% YTM), but with a higher probability they will have to exchange their notes for the new paper, which would yield them the 43% IRR. Moreover, by a refusal to exchange, note holders will increase the probability of DTEK’s default, an outcome the holding explicitly and shamelessly disclosed in its offer.

Источник: Конкорд Капитал