Ukraine’s MHP asks noteholders to extend grace period amid conflict

By Wendy Van Sickle

Columbus, Ohio, March 21 – MHP SE and MHP Lux SA are soliciting holder consents to amend the indenture governing the $500 million of 7¾% notes due 2024 (Cusip: 55302TAD7), the $550 million of 6.95% notes due 2026 (Cusip: 59318YAA6) and the $350 million of 6¼% notes due 2029 (Cusip: 59318YAB4), according to a notice.

The 7¾% were issued by MHP SE, and the 6.95% and 6¼% notes were issued by MHP Lux.

MHP is seeking the consent of holders of the outstanding notes to implement a 270-day extension of the grace period, following which an event of default will arise from the non-payment when due of the first 2022 interest payment on the notes.

Additionally, during this support period, the company and its restricted subsidiaries will not be able to incur debt under the ratio-based permission for the incurrence of indebtedness; the “general basket” for the incurrence of permitted debt will be reduced to $10 million in total principal amount; and the company and its restricted subsidiaries will be prohibited from incurring new liens on existing debt for borrowed money, other than permitted refinancing indebtedness relating to existing secured indebtedness and from making restricted payment other than payments constituting permitted investments.

Further, the permitted investments general basket will be unavailable; the threshold at which an affiliate transaction must be approved by a majority he disinterested members of the board of directors shall be reduced to $1 million; and the company must provide a trading update detailing operational data relating to the group’s business segments within 25 days of the end of each calendar month.

Adoption of theses amendments requires the consent of holders of a majority in principal amount for each series. The proposals for each series are inter-conditional on one another, unless waived by the company.

Background

As a result of the ongoing Russian war in Ukraine, MHP said it has “experienced a number of significant disruptions and operational issues within its business while undertaking extensive and continuous humanitarian efforts.”

The company noted that, in over 16 years in the bond market, it has previously always complied with its obligations, even in 2015 when it was the only public eurobond market borrower from Ukraine that fully fulfilled its obligations to international creditors, despite the ongoing Russian military aggression in the country.

However, the issuer did not pay interest on the 2029 nots that was due on March 19, constituting a default on that series and an event of default if the payment is not made within 30 days of the due date. The company said it is also unlikely to pay interest on the 2026 and 2024 notes due on April 3 and May 10, respectively, which would give rise to similar defaults and events of defaults under those series.

The consent solicitation seeks to help MHP preserve its liquidity in a very turbulent and uncertain environment, which will assist it in ensuring the continuity of its business in the short, medium and long terms. In light of the upcoming sowing season, the company said it must continue its current operating activities so that it can ensure the production and supply of grains to Ukrainian consumers and be ready to begin exporting again when the opportunity arises.

MHP said, as of March 21, it has $228 million of cash and undrawn working capital facilities of $154 million that are not available in the current environment. The company said its spring sowing needs will amount to about $160 million through June, with revenues accruing starting in September, in line with regular operations. The winter sowing campaign that would run from July thorough December 2022 would be another $100 million expense, the company said.

MHP said it is currently generating negative cash flows that are available for debt servicing due to lack of poultry and sunflower oil exports, disruptions of the distribution chain and the company’s humanitarian efforts.

The company said it plans to treat all creditors equitably and has requested holders of $126 million of its bank loans to agree to a general postponement of debt servicing in the current environment for a period no shorter than the requested support from noteholders.

Details

The solicitation will expire at 5 p.m. ET on March 30.

J.P. Morgan SE (em_europe_lm@jpmorgan.com) is the solicitation agent.

Morrow Sodali Ltd. (203 609 4910, +44 20 4513 6933, 852 2319 4130 or MHP@investor.morrowsodali.com) is the information and tabulation agent.

The issuer is a Kyiv, Ukraine-based agriculture-industrial company.

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