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UPDATE 1-Ukraine bonds leap on restructuring deal, CDS down 300 bps
August 27, 2015 / 11:56 AM / 2 years ago

UPDATE 1-Ukraine bonds leap on restructuring deal, CDS down 300 bps

(Updates, adds analyst, CDS, index)

LONDON, Aug 27 (Reuters) - Ukraine’s sovereign dollar bond prices surged on Thursday and debt insurance costs fell after the country said it had reached a debt restructuring deal with a committee of creditors.

The deal was judged by analysts to be investor-friendly and to rule out a unilateral default by Ukraine. It also enables Kiev to stay on track with an International Monetary Fund-led bailout programme.

Ukrainian dollar bond yield spreads on JPMorgan’s EMBI Global index contracted by 553 bps over U.S. Treasuries to their narrowest since December 2014.

Ukraine’s 2017 issue gained 10 cents to trade at eight-month highs around 66 cents in the dollar, according to Tradeweb data. The 2022 bond jumped 11 cents

A $500 million issue maturing at the end of September, which is also subject to restructuring, rose 4.3 cents to also trade at 64 cents

The deal involves a 20 percent writedown on bonds’ principal, a four-year maturity extension, a small increase in coupons and 20-year growth-linked instruments

“Clearly more generous to bond holders than I had thought, especially in the short end. The new coupon of 7.75 percent is actually going to be higher on eight out of the 11 Eurobonds,” said Jakob Christensen, a credit strategist at Exotix.

A bond trader in London said that while a 20 percent writedown had already been priced in, a coupon of 7.75 percent and the inclusion of GDP warrants - instruments linked to a recovery in growth -- were the main drivers for the price gains.

Ukraine’s five-year credit default swaps - instruments used to insure against default or restructuring - fell 300 basis points to 1998 bps, according to data from Markit.

The CDS had hit highs above 4,700 bps towards the end of May when it appeared that Ukraine would be forced to default. On May 19, Ukraine’s parliament passed a law allowing the government to impose a moratorium on foreign debt payments.

Russia says it has not been approached by Ukraine over restructuring a $3 billion Eurobond that matures in December . Russian Finance Minister Anton Siluanov said earlier this year it would take Ukraine to international courts if Ukraine does not respect the terms of its debt repayments .

Reporting by Sujata Rao, additional reporting by Daria Korsunskya, Vladimir Soldatkin and Lidia Kelly in Moscow; editing by Larry King

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