Fitch Ratings has downgraded DTEK Energy B.V.'s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to 'Restricted Default' (RD) from 'C' following the execution of the tender offer and the company's disclosure of the result of its consent solicitation related to changes in the notes' documentation, the agency said on its website.

"We view the tender offer as a distressed debt exchange (DDE). Fitch has simultaneously upgraded the IDR to 'CC', reflecting DTEK Energy's post-restructuring profile with high default risk," it said.

"DTEK Energy's IDR of 'CC' reflects its tight liquidity, which follows the severe operational disruptions resulting from Russia's invasion of Ukraine," the document states.

"Following the execution of the tender offer, DTEK Energy used $19.8 million of its cash in offshore accounts to repurchase part of its $80 million outstanding 7-7.5% senior secured payment-in-kind (PIK) toggle notes due 2027. The buyback consisted of a material reduction in terms as it is well below par (the highest accepted price was EUR270 per EUR1,000 in principal amount). The tender offer was executed in a lower amount than the targeted $50 million, thus reducing the future debt service by less than half of what was expected," Fitch said.

"Following the repayment of $10 million principal, $28 million coupon payment of the toggle notes due in December 2022 and the bond repurchase, the cash available outside Ukraine should be sufficient for only one more cash coupon payment of about $26 million in March 2023, or three coupon payments if the company elects to pay interest partly in PIK and partly in cash. Under the bond documentation it is allowed to pay interest partly in PIK and partly in cash for consecutive three more quarters after its first use in March 2022," the agency said.

"DTEK Energy's upcoming debt maturities are low, with $10 million notes repayment in June 2023 and $10 million in December 2023. The interest payments will average $26 million every quarter," it said.

"DTEK Energy so far has not been granted an exception to Ukraine's foreign-exchange (FX) transfer moratorium, without which it cannot transfer abroad any cash available in Ukraine to service the FC notes," Fitch said.

"Fitch views the risk of further material disruptions in the company's operations as high, which may prevent DTEK Energy from generating sufficient free cash flow to pay its interest and debt obligations scheduled for 2023, once the company gets exception to the FX payment moratorium," the agency noted.