[LINK] "Greece, Argentina Provide Model as Ukraine Considers GDP Linkers"

[rfmcdonald]

I have to say, reading Lyubov Pronina and Katia Porzecanski's Bloomberg article, that none of this looks good for Ukraine.

As debt talks intensify between Ukraine and its creditors, securities that pay out if economic growth exceeds expectations will probably be on the agenda, echoing deals done by Argentina and Greece in the past decade.

Ukraine’s restructuring proposal includes a “value-recovery instrument,” the Finance Ministry said last month, while a person familiar with a bondholder plan submitted in May said it has a debt-for-equity swap element. Both securities feature interest payments tied to gross domestic product, so-called GDP-linked warrants.

The main point of disagreement in the talks is whether bondholders should accept losses on the face value of the debt, something that Ukraine insists upon, while a creditor group led by Franklin Templeton has said it isn’t necessary to achieve the goals of the restructuring. The two sides said today they made progress in talks this week and are working on “narrowing the gaps” between their proposals.

While providing scope for compromise, GDP warrants are also likely to be a source of further disagreement, with the level at which they’re triggered open to debate. Argentina is considered to have set it too low, saddling the country with billions of dollars of payments over the past decade, while the Greek securities have yet to bear fruit with the nation’s economy shrinking in every year but one since its bailout.