A coalition of hedge funds invested in Ukraine, including Aurelius Capital Management and VR Capital Group is gearing up for debt-restructuring negotiations with the Ukrainian government to rework approximately $2.6bn in GDP warrants, according to a report by Bloomberg.
The report cites unnamed sources familiar with the situation as confirming that the creditor group is receiving legal advice from Cleary Gottlieb Steen & Hamilton.
This move comes as Ukraine faces impending payments to warrant holders in August – a consent fee and a payment for the 2021 period. The GDP warrants, which provide creditors with payments linked to Ukraine’s economic performance, were issued as part of a 2015 debt restructuring. These instruments were notably excluded from a recent $20bn bond restructuring agreement between Ukraine and its international bondholders.
Neither Cleary Gottlieb, Aurelius, VR Capital, nor the Ukrainian finance ministry have provided comments on the ongoing discussions.
In a recent statement, the Ukrainian finance ministry assured that it aims to treat warrant holders fairly in any future liability management proposals. The ministry committed to paying the consent fee on 1 August, along with a deferred payment on the notes, totalling about $250m.
The GDP warrants, maturing in 2041, have been trading at about 58 cents on the dollar, close to their highest value since Russia’s full-scale invasion of Ukraine in 2022. Following the invasion, Ukraine’s international bondholders agreed to a two-year moratorium on debt payments, set to expire next month, to alleviate the country’s financial stress during the war.
The hedge funds’ decision to organise came after Ukrainian officials indicated in early July the need to include the GDP warrants in debt restructuring efforts. According to Morgan Stanley strategist Simon Waever, the warrants could likely be exchanged for bonds in the coming months, benefiting from the current exclusion and confirmed payments in August.
The separate bond restructuring agreement involved a creditor committee comprising Amundi, BlackRock and Amia Capital, among others, who collectively represent around 25% of the bonds. It remains uncertain whether this group will participate in the restructuring negotiations for the GDP warrants.
As part of the bond restructuring, parties agreed to remove a cross-default clause between the international bonds and the warrants. This clause would have caused a default on one instrument to trigger defaults on others, complicating the restructuring process further.
