Concorde Capital Research: Details on Interpipe value-recovery instrument emerge

Ukraine’s largest pipe producer Interpipe (INPIP) intends to offer its international creditors a ten-year value-recovery instrument (VRI) linked to the greater of EBITDA and CFADS (cash available for debt service), Debtwire reported on Feb. 26. The payouts would amount to 15% of CFADS or EBITDA in years 1-4, 20% in years 5-7, and 25% in years 8-10, Debtwire said, adding that Interpipe would retain an early settlement option. In addition, Debtwire reported that the restructuring fee would amount to USD 5.9 mln, and that there would be additional lockup fees for several classes of creditors. Recall, Feb. 20 was the deadline for Interpipe’s creditors to enter into lockup agreements in relation to the company’s latest restructuring proposal. Interpipe will be able to simply sign restructuring documents if it secures 100% creditor approval, Debtwire said. If not, the company will need to use an English scheme of arrangement. Dmytro Khoroshun: We estimate that the VRI increases the value of Interpipe’s proposal by up to 7-8% of nominal. In detail, Reorg Research previously reported that the international creditors, with a total of USD 936 mln in debt (including USD 199 mln in Eurobonds), will be offered a six-year USD 310 mln bond and a USD 45 mln loan. Using the recently-hiked bond coupon rate of 10.25%, and discounting the bond flows at 15%, we arrive at an NPV of USD 295 mln, or 31.5% of the nominal amount of international creditor debt, and this is without the VRI. Now, assuming as a reasonable better case yearly EBITDA of USD 120 mln (the 2017 value reported previously by Reorg Research), and discounting the VRI flows to the creditors at 25%, we come to an NPV of USD 365 mln, or 39.0% of nominal. Considering that Interpipe’s bond is currently quoted at 28.7/33.5, according to Bloomberg, Interpipe’s offer with such VRI parameters appears to offer up to 7-8pp in upside.

• Status
  redeemed
• Country of risk
  Ukraine
• Redemption (put/call option)
  *** (***)
• Amount
  200,000,000 USD
• М/S&P/F
  — / — / —

• Full name
  Interpipe Limited
• Registration country
  Cyprus
• Industry
  Ferrous metals