By KYIV. Dec 12 (Interfax-Ukraine) – Fitch Ratings has downgraded JSC Ukrzaliznytsia (UR) Long-Term Foreign-Currency Issuer Default Rating (LTFC IDR) to ‘C’ from ‘CC’ following its consent solicitation to defer its debt servicing of its U.S. dollar loan participation notes (LPN) maturing in 2024 and 2026, the agency said on its website.
"Fitch has also downgraded the Long-Term Local-Currency Issuer Default Rating (LTLC IDR) to ‘C’ from ‘CCC-‘ and lowered the Standalone Credit Profile (SCP) to ‘c’ from ‘ccc’," it said.
"Fitch views the solicitation as a distressed debt exchange (DDE) under its criteria, given the proposed restructuring involves a material reduction in terms and is being conducted to avoid insolvency," it said.
"Fitch believes the proposed deferral of the principal and coupon constitutes a material reduction in the terms of the existing eurobonds, and hence a DDE under its criteria. However, we also understand that the proposal does not involve any principal or coupon haircut. UR will offer investors a fee for their consent and will also include certain covenant concessions from UR’s side. In particular, UR is asking to defer each by two years – the maturity of its $594.9 million 8.250% and $300 million 7.875% notes originally due on July 9, 2024 and July 15, 2026, respectively," Fitch said.
"The consent solicitation also includes deferring the coupon payments due on January 9 and July 9 each year for 2024-LPN and January 15 and July 15 each year for 2026-LPN for a 24-month period starting from January 9 and January 15, 2023. The deferred coupons will continue accruing interest at the respective bond’s coupon rate for the duration of the deferral period, at the end of which the deferred interest amounts will either be paid in cash by UR or capitalized," it said.
"UR’s liquidity position is weak given a large need to fund operations and to restore damaged infrastructure. In H1 2022, the company received UAH 10 billion from the Ukrainian state to ensure continuous operation of railway transport during martial law. The company has managed to repurpose its available credit lines available at international financial institutions (IFIs) initially for investment to liquidity use. If the consent solicitation is completed, UR should be able to utilize the current financing arrangements of around EUR199 million. A further EUR200 million may follow after European Bank of Reconstruction and Development’s (EBRD) additional procedures and subject to EBRD’s review of UR’s operational and financial performance and needs," Fitch experts stated.
