A few months after Russia invaded Ukraine, Rothschild & Co, the country’s financial adviser, presented Kyiv’s debt chief with a thick black folder outlining significant sovereign debt restructurings of the past 30 years.
For Yuriy Butsa, 40, it would prove essential reading. He hadn't been involved in the debt rework Ukraine required in 2015 after Russia annexed Crimea, and it wasn't long before he needed to draw on restructuring expertise.
Facing an economy crippled by the cost and destruction of the war, by August 2022, Ukraine agreed with creditors to pause payments on its bonds. With no end to the conflict in sight, last week, the nation sealed one of the fastest – and largest – debt restructurings in history.
Eclipsed in scale only by Argentina and Greece, restructuring more than $20 billion of debt will save Kyiv $11.4 billion over the next three years – crucial for its ongoing war effort and its International Monetary Fund (IMF) program.
"A stable situation where no more question marks are out there can only benefit Ukraine," Arvid Tuerkner, managing director for Ukraine and Moldova at the European Bank for Reconstruction and Development (EBRD), one of Kyiv's big multilateral partners, told Reuters.
This account of how Ukraine's agreement with bondholders came together is based on interviews with five sources on both the government and investor sides who were involved in the talks and agreed to speak with Reuters on the condition of anonymity.
Initial negotiations between the government and its lenders hadn't gone to plan.
Talks in June broke down after a couple of weeks, with the core committee of bondholders complaining that the write-down Ukraine was demanding was "significantly in excess" of the 20% most had expected and risked doing "substantial damage" to relations.
With less than two months till the August 2022 payment moratorium expired, Rothschild arranged face-to-face meetings at the firm's elegant Parisian offices on the leafy Avenue de Messine.
Rothschild declined to comment. The IMF did not immediately respond to a request for comment when asked on a U.S. holiday.
Early on July 16, representatives of some of the world's top asset management firms and their legal and financial advisers arrived in Paris, where they joined Butsa, Ukraine's long-term legal advisers, White & Case and the Rothschild team.
A raft of meeting rooms adorned with pictures of the famous Rothschild vineyards had been reserved for joint discussions and private strategizing.
The mood was pragmatic from the start, sources on both the government and the creditor side said. Everyone had come hoping to do a deal – even though both sides were still far apart.
There was reason to be back in talks.
As well as the looming deadline, the IMF, providing Ukraine with $15.6 billion of support, had just updated its projections. They had reflected a worsening economic picture but gave a new base from which to work.
Ukraine kicked off by setting out its proposal. Members of a key bondholder group, representing some of the world's biggest asset managers such as BlackRock and Amundi, got to explain their demands too: that Ukraine restart 'coupon' payments immediately, offer a path to a higher principal recovery and, importantly, "keep it simple."
IMF experts were on call in both Kyiv and Washington in an exceptional arrangement, according to one source. That was vital for doing the labor-intensive modeling needed to work out what each proposed compromise would mean for Ukraine's longer-term debt sustainability.
By 4 a.m. on July 18 in Paris, or 5 a.m. in Kyiv, and nearly 48 hours into the process, another request was made to the IMF teams to rerun the numbers. Some of those crunching the figures had barely slept.
The Fund's help was invaluable; its staff worked at breakneck speed and helped overcome multiple obstacles.
Discussions around how to tap Russia's frozen assets and confusion around a new IMF policy designed to try and help it adapt to the realities of a full-blown war had meant talks hadn't been able to start at April's IMF Spring meetings as hoped and were still causing issues.
Butsa's team and the IMF were also adamant that there couldn't be anything like the costly "GDP warrants" used to sweeten its 2015 restructuring. Under their terms, Kyiv is required to stump up a large chunk of its economic output if nominal GDP exceeds $125.4 billion and annual growth hits 3%.
But Ukraine was providing an alternative in the form of a simpler GDP-linked bond, and creditors were also being offered the instant coupon payments that they had wanted, starting at a rate of 1.75% and eventually rising to 7.75%.
Structured to be eligible for the main bond indexes and therefore easier to buy and sell, it meant the gap between the sides had been as good as bridged. With just the fine print to finalize, those in Paris made their exits as the packed city put the finishing touches on its Olympics preparations.
The drama wasn't entirely over, however.
Driving back from the Polish airport where his flight had landed – the most reliable route since Russia's invasion halted flights from Kyiv – a driver turned across Ukraine debt chief Butsa's VW Golf.
No one was hurt, but Butsa was now sitting in an insurance office in Lviv, filling out forms while taking calls to finalise the statement that the $20 billion restructuring had, in principle, been agreed.
The resounding final result from the bondholder vote was more than 97% support.
