Ukraine develops four incentives for creditors' participation in restructuring

According to the presentation, the Most Favored Creditor Clause in the exchange documentation prohibits Ukraine from paying holdouts in accordance with original contractual terms or settling with holdouts on more favorable terms (based on NPV) than those received by exchanging holders in this operation (without reference to any value attributable to the VRIs) unless an offer is made on the same terms or with equivalent value to holders of New Notes.

The second important condition for debt operations is that holdouts will not receive any VRI as part of any future settlement.

Read alsoUkraine to meet creditors in London, NY on Oct 5-6The third incentive suggests that the priority legislation adopted by the Rada, when combined with the power vested in the CMU by Ukrainian law to declare a suspension of payments on possible holdouts, will make it more difficult for holdouts to pursue successful litigation strategy.

In addition, the fourth incentive says that any default on or legal action under existing instruments held by holdouts will not affect the new notes or VRIs – there is no "cross default" in these circumstances.

Also in the presentation notes that holders of "short" bonds of Ukraine maturing in September and October 2015, given the limited amount of new bonds maturing in 2019, will have the priority right to receive them, while the share of other creditors will have a smaller amount of bonds and increasing the number of bonds maturing from 2020 to 2027.

Read alsoUkraine bond deal at risk as rebel investors demand change: BloombergIt is also said that holders of Ukraine's notes due September 2015 and October 2015 will be allocated their full consideration in New Notes due 2019 only and VRIs. The extra share of 2019s, which the September and October 2015 noteholders will receive, will reduce the amount of New Notes due 2019 available to other noteholders. Accordingly, other noteholders will receive a smaller allocation of New Notes due 2019 and a larger allocation of New Notes allocated ratably (i.e. 1/8th of each) across New Notes due 2020 to 2027.

Value Recovery Instrument based on real GDP growth, providing potential upside to holders from 2021 to 2040 (20 annual payments) under the following terms:

– No payments if real GDP growth is below 3%,

– 15% of the value of the GDP growth between 3-4%,

– 40% of the value of the GDP growth above 4%,

– Annual payments capped at 1% of GDP from 2021 until 2025, and

– No payments if nominal GDP is lower than $125.4 billion.

Read alsoIMF urges all creditors to support Ukraine's restructuring dealAs UNIAN reported earlier, on August 27, Ukraine agreed with creditors on the restructuring of its sovereign debt worth $18 billion with a 20% haircut after five months of talks, giving President Petro Poroshenko some breathing room as he seeks to avert default and revive an economy decimated by a war with Russian-backed separatists.