PrivatBank's trustee says no funds to pay costs of investigating "bailed-in" bonds

Deutsche Trustee Company Limited, a trustee for Dnipro-based PrivatBank's notes maturing in 2018, has informed noteholders that it has no funds to pay the costs of investigating the implications on the notes of the terms of a Deposit Guarantee Fund Letter or a PrivatBank Letter.

"The Trustee has no funds at its disposal to pay the costs of investigating the implications on the Notes of the terms of the Deposit Guarantee Fund Letter or the PrivatBank Letter," it said in a Notice of Material Events dated January 5, 2017.

The notice was issued in light of reports in the press that PrivatBank had been nationalized and that the loans relating to the Notes are to be 'bailed-in' by the National Bank of Ukraine (NBU).

The Deposit Guarantee Fund Letter dated December 29, 2016, refers to a press release issued by the NBU saying that "Article 41.1 of the Law of Ukraine on Households Deposit Guarantee System provides for the resolution of a regulated bank by appointment of a temporary administrator, the bail-in of certain liabilities and the nationalization of the bank."

"Pursuant to the exercise of Article 41.1 in respect of PrivatBank, each of the loans represented by the loan agreements were bailed-in during the temporary administration of PrivatBank. The nationalization of PrivatBank (at which point the temporary administration of PrivatBank ceased) has also occurred on 21 December 2016. Payments under each series of Notes are made on a limited recourse basis to the extent that principal, interest or other amounts are received by the issuer of the Notes under the relevant Loan Agreement and as such where no payments are made under the Loan Agreements following bail-in, no payments will be made under each series of Notes," the NBU said in the press release.

At the same time, the Trustee's Notice says that Clause 17.3.2 of both Trust Deeds provides that, the Trustee is not obliged to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties or the exercise of any right, power, authority or discretion thereunder if it has reasonable grounds for believing the repayment of such funds or adequate indemnity against, or security for, such risk or liability is not reasonably assured to it.

"In light of the current uncertainty surrounding the borrower and the issuer's financial position and more specifically Clauses 17.3.2 'Expenditure by the Trustee' of both Trust Deeds (as summarized above for ease), any noteholder wishing to provide funding to the Trustee to pay its fees and costs in this matter, which includes the costs of any financial or legal advice the Trustee may require, should contact the Trustee in the manner given below as soon as possible," it said.

PrivatBank had the following notes in issue:

1. US $175 million 10.875% Loan Participation Notes due 28.02.2018;

2. US $200 million 10.25% Loan Participation Notes due 23.01.2018; and

3. US $220 million 11% Loan Participation Notes due 2021.