2.3.2. Restructuring o f the PRINs and IANs....those were the days.....1998/9 war ich hier 7-stellig dabei....

wohlgemerkt bei den PRINs (Principals)


2.3.2. Restructuring o f the PRINs and IANs

In late 1998, Russia failed to make payments on the coupon of the PRINs
(face value US$22.2 billion) and in June 1999, on the coupon of the IANs
(face value US$6.8 billion).5' It has been argued that prior to missing the
June 1999 payment, Russia tried to amend the contractual terms of the
bonds' but the required 95 per cent threshold was not reached.52
Russia reconstituted the former commercial bank advisory committee
that handled the first rescheduling of this debt, although new members were
appointed according to actual representative positions on Russian debt.53
On February 11, 2000, a new exchange offer was proposed to creditors
consisting on the following terms: (1) PRINs and IANs would be exchanged
for a 2030 Eurobond at 62.5 per cent and 67 per cent of their par value,
respectively; and (2) interest arrears on PRINs and IANs accrued up to
March 31, 2000 in the amount of US$2.8 billion were exchanged for a 2010
bond.54 The exchange offer was closed on August 25, 2000.
Both bonds are USD denominated and their main economic features are
as follows55:

• 2030 bond: it has 47 semi-annual principal repayments beginning on
March 31, 2007 and interest is also payable on a semi-annual basis
having started on September 30, 2000 at a 2.25 per cent rate that
increased 0.25 per cent until March 31, 2007 after which it is 7.5 per
cent until maturity.

• 2010 bond: 9.5 per cent of principal of the bond was paid upon
completion of the exchange. Interest is payable on a fixed semiannual
basis starting on March 31, 2006 at 8.25 per cent coupon.


49 Federal Commercial (Arbitrazh) Court of Moscow District [FASMO] No KT-A40/172-00,
February 1, 2000 (quoted by Nadmitov, “Russian Debt Restructuring” (above para.4-004
fn.6), p.27).
50 IMF, Russian Federation: Recent Economic Developments (above para.4-012 fn.43), p. 108.
51 Riley and McCormack, Sovereign Report: Russian Federation, Fitch IBCA Ratings, London,
August 31, 2000, p.20.
52 Nadmitov, “Russian Debt Restructuring” (above para.4-004 fn.6), p.48.
53 Lee C. Buchheit, Unitar Training Programs on Foreign Economic Relations, Doc. No.l,
Sovereign Debtors and Their Bondholders 4 (2000), p.13 available at http://www.unitar.org/
dfm/ Resource-center/Experts/ Buchheit/BooksChap.htm.
54 Riley and McCormack, Sovereign Report: Russian Federation, Fitch IBCA Ratings, London,
August 31, 2000, p.20.
55 Riley and McCormack, Sovereign Report: Russian Federation, Fitch IBCA Ratings, London,
August 31, 2000, p.21.
I
4-014
197

4-015 The main legal terms of these new bonds can be summarised as follows: (1)
the obligor is Russia; (2) they are subject to English law; (3) amendment of
the payment terms requires the vote of holders of 75 per cent of the
aggregate principal amount at a quorum meeting of a minimum of two
persons holding at least a 50 per cent the aggregate principal amount, for
all other terms a simple majority is required56; and (4) they included a pari
passu clause, a cross-acceleration clause linked to the previous Russian
Eurobonds, an expanded cross-acceleration clause57 and repurchase rights.58
The main difference between this restructuring and the previous London
Club restructuring held in 1997 is that the new debt instruments will have
the same status as to Russia’s debt. In the opinion of Riley and McCormack,
59 if Russia had not done this, it would have permanently lost access to
international capital markets.

2.3.3. Restructuring o f the MinFin (III)

4-016 On May 14, 1999, the Russian Ministry of Finance issued a letter asking the
holders of MinFin tranche III not to produce the instruments for payment
until November 14, 1999 and proposed that these securities be held by the
Vnesheconombank on a free of charge basis.60 Moreover, on November 29,
1999 the Russian Government issued Decree 1306 authorising the Vnesheconombank
to act in an agency capacity for the Ministry of Finance in
the novation of the III tranche MinFins.6'
In the restructuring proposal, investors were faced with the option to
combine a new eight-year bond US dollar denominated with a 3 per cent
coupon (similar to the MinFins) with a four-year OFZ bond rouble
denominated with a 15 per cent coupon the first year and 10 per cent
thereafter.62 As noted by Santos, bondholders preferred the foreign currency
denominated option.63 Throughout the novation period, Vnesheconombank
had accepted 797 applications for the III tranche MinFins exchange, in the
56 Riley and McCormack, Sovereign Report: Russian Federation, Fitch IBCA Ratings, London,
August 31, 2000, p.21.
57 By this clause, any new Eurobond issue will include a clause by which a failure to honour the
2010 and 2030 bonds terms will be treated as an event of default allowing bondholders of the
new bonds to be issued to demand immediate and full repayment.
58 Until one billion of new bonds including the “expanded cross-acceleration clause” had been
issued, holders of the 1996-1998 Eurobonds and new Eurobonds to be issued can demand
full and immediate repayment in the event of acceleration of either the 2010 or 2030
Eurobonds.

59 Riley and McCormack, Sovereign Report: Russian Federation, Fitch IBCA Ratings, London,
August 31, 2000, p.23.
60 Vnesheconombank Annual Report 1999, available at http:llwww.veb.ru/media/last/annual/
veb_annual_1999_eng.pdf.
61 Vnesheconombank Annual Report 1999, available at http://www.veb.ru/media/last/annuall
veb_annual_l999_eng .pdf.
62 Nadmitov, “Russian Debt Restructuring” (above para.4-004 fn.6), p.23.
63 Santos, “Debt Crisis in Russia” in Russia Rebound (2003), p. 180.
198




LEGAL ASPECTS OF
SOVEREIGN DEBT
RESTRUCTURING
Rodrigo Olivares-Caminal
LL.B. (Abogado), LL.M. (Warwick), Ph.D. (London)
Sovereign Debt Expert (UNCTAD)*
Assistant Professor (University of Warwick)