How protective are Ukraine’s international bonds?

This note contains a brief commentary on some of the main legal terms in international debt issues of or guaranteed by Ukraine. The objective is to analyse the degree to which these bonds are consistent with practice in the international capital markets and to weigh up the balance between the sovereign debtor and the bondholder creditors in terms of the rights and protections granted by the terms of the bonds.

Our main conclusion is that the bond issue legal terms seek to enhance stability for both Ukraine and the bondholders if there is a crisis.

This commentary is based on the terms set out in an issue by Ukraine of $1bn (£600m) 7.95 per cent notes due 2014 covered by a prospectus dated 30 August 2012. We have, so far, looked at another 14 or so prospectuses covering international bonds, all governed by English law, and the relevant terms discussed in this note seem to be the same or very similar. Nearly all are for US dollars. These other prospectuses are for English law issues where the prospectus is dated October 2005, November 2006, January 2007 (Swiss francs), November 2007, November 2009 (Naftogas restructured guaranteed issue), September 2010, November 2012, February 2011, June 2011, July 2012, November 2012, April 2013 and February 2014. There are significant differences in the latter document. We have also looked through a prospectus of 7 December 2012 for an issue of around $550m notes issued by ‘Financing of Infrastructural Projects’ guaranteed by Ukraine where there are detailed differences compared with the direct bond issues listed above. We have not at this stage looked at the specific terms of trust deeds or the like (only at the prospectuses) or the terms of any notes that may be outstanding under earlier reschedulings of Ukrainian public debt or the terms of Ukraine’s domestic debt issues…

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