Fitch Ratings has said that restructuring of PJSC Ukrzaliznytsia's Eurobonds would be completed in late February or early March 2016, the Interfax-Ukraine news agency reported.
Fitch announced that the debt restructuring terms agreed by the State Railway Administration of Ukraine's (Ukrzaliznytsia), and a creditor committee would meet its distressed debt exchange (DDE) criteria.
On 9 December 2015, Ukrzaliznytsia announced it had agreed the restructuring terms for its $500 million Eurobond with the creditor committee. The Eurobond is structured via Shortline Plc's loan participation notes, for which Ukrzaliznytsia is a guarantor. The terms of restructuring include a maturity extension to September 15, 2021 from May 21, 2018; coupon step-up to 9.875% from 9.5%; and an amortization schedule of principal with 60% of the principal to be repaid in 2019, 20% in 2020 and 20% in 2021, Fitch said.
"In our view, the coupon step-up does not fully compensate the extension of maturity so we consider that our DDE criteria are met," Fitch said.
Completion of the DDE typically results in a downgrade of the Issuer Default Rating (IDR) to Restricted Default (RD).
"Shortly after the DDE is completed, Ukrzaliznytsia's IDR will be re-rated and raised to its performing level, which is likely to be still in the low speculative grade. Fitch expects completion of the restructuring in late February/early March 2016, which will be followed by respective rating actions," Fitch said.
The agency continues to view Ukrzaliznytsia as a credit-linked public-sector entity (PSE) to its sponsor, Ukraine (CCC/C/CCC) as per Fitch's PSE rating criteria. Fitch understands that part of the issuer's foreign currency debt was included in the restructuring negotiations being pursued by the national government, suggesting ongoing linkages. However, the distressed situation of the issuer and its sponsor has led to a removal of the rating equalisation. Ukrzaliznytsia's foreign currency IDR is presently two notches below the sovereign's.