Some holders of Ukraine's dollar bonds are looking for ways to get more favorable terms from the government, arguing that last year's restructuring of GDP-linked securities undermined their position, Bloomberg reports, citing sources familiar with the matter, writes UNN.
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"Investors who exchanged their warrants in December received a new class of dollar debt, and some bondholders from the previous restructuring are discussing whether they should seek similar terms," sources familiar with the matter said. Bondholders view the new Class C debt as offering better protection.
Law firm Weil, Gotshal & Manges is organizing discussions among investors who may send a joint letter to the government asking to resume negotiations, sources said. If negotiations between Class A and B bondholders and the government take place but lead nowhere, legal action remains an option, the sources added.
A spokesman for the Ukrainian Ministry of Finance reportedly declined to comment when contacted by Bloomberg. Weil, Gotshal & Manges did not respond to multiple requests for comment.
The country's dollar bonds lost their gains after the report was published, making them the worst performers in emerging markets after Pakistan. Bonds due in 2036 traded more than 1 cent lower, to 60.4 cents on the dollar as of 1:25 p.m. in London.
According to sources, some creditors wanted to know whether the International Monetary Fund's new program for Ukraine included a new debt restructuring before deciding on their next steps.
On Thursday, the IMF approved a four-year support program for Ukraine worth $8.1 billion. In its statement, it emphasized that there is a possibility of further debt restructuring in the future, without indicating an immediate need for such restructuring.
Nevertheless, according to the report, the Washington-based fund's negative scenario projected a cumulative financing gap of $146.3 billion over four years, which would have to be partially filled by "further debt relief resulting from a deeper restructuring."
"Potential challenges to the debt restructuring process today were countered by more positive news from the IMF," said Timothy Ash, senior emerging markets sovereign bond strategist at RBC BlueBay. "The IMF anticipates early market access by 2029, hopefully this will not complicate that timeline."
Trevor Lessard, IMF Deputy Head in Ukraine, said that negotiations are a matter for debt consultants and bondholders. "But we are monitoring the situation, and if anything changes, we will have to adjust our approach," he noted.
GDP warrants are a relatively niche form of debt linked to a country's economic growth rate, the publication notes. Ukrainian bonds were excluded from the $20 billion restructuring in 2024 due to their complexity and potentially large payouts resulting from post-war economic recovery, the publication writes.
But in December, Ukraine reached an agreement with a group of investors to exchange warrants worth up to $3.2 billion for a new class of bonds, part of a broader effort to stabilize public finances amid Russia's ongoing invasion.
The two main stumbling blocks during these negotiations were the degree of protection afforded to the new Class C bonds in any future restructuring, known as "loss recovery," and the voting rights associated with the securities. Both of these features were seen by some Class A and B bondholders as putting them at a disadvantage, particularly because the loss recovery protection on their debt expired in January.
In the initial 2024 restructuring, bondholders were represented by a large group that included Amundi, BlackRock, Wellington Management, and Amia Capital.