Smart Debt Restructuring


How to break the deadlock between lender and debtor – experiences from the negotiation front in the non-performing loan arena

By Marc-Milo Lube and Alexei Chernyshov
VI2 Partners GmbH

When John Wayne entered the Saloon in his famous Hollywood Western movies, the gangsters knew he was ready to shoot first and ask questions later. Consequently, in most situations, he did not have to shoot at all. Bad debt business is like a real-life Western movie: exciting, nothing for the faint-hearted, sometimes dirty. And when your opponents arrive with knives, you better have your gun ready and unlocked.

The Non-Peforming-Loan (NPL) Saloon in Ukraine is wide open. With a 56% NPL ratio of the total countrywide loan book and a volume of close to USD 20 billion, the Ukrainian NPL market deserves an in-depth investigation from institutional investors as well as workout companies. Most of the NPL volume is concentrated within the corporate sector (> 80% of the NPL volume) and is highly covered with underlying assets, and therefore interesting for a workout. Both for the Government, the National bank, and supranational institutions, the clean-up of the NPL portfolio is a priority, as it acts as a congestion to the credit system and slows down new loan issuing and economic growth. Dynamics in the sector will be high in the coming 2-3 years and rewards high for the successful players.

Bad debt business is very simple. A debtor is not able or does not want to pay back the principal and/or interest to his lender(s). The cheapest and easiest way out is most of the time not taken, namely a co-operative agreement on a restructuring of the debt or the forfeiture and subsequent sale of an asset covering the total of the debt. The modern game theory has many explanations for this situation: it is a mixture of greed, misplaced morality, chicken run, compliance frameworks, criminal behavior and personal egos.

Enters the outside (who is sometimes inside!) investor and buys the debt from the lender to go for the extra yield, either interested in a fast cash payback of the debt or in an appropriation of underlying assets. This is the big greed game, where yields are over-proportional but difficult to realize. Having fought on all fronts of the spectrum, there are some lessons learned to share for lenders, investors, and debtors. Here are some general observations in the field of bad debt business, which are relevant for all players.

Exit Strategy – think from the end

All successful wars start with thinking through the end-game. It is astonishing to see even with experienced market players, how a) banks start lengthy court proceedings and appropriation processes without knowing what to do at a later stage with an asset, how b) investors are led by a superficial yield calculation/greed without being clear how and when to ever realize any gain and c) debtors believe they can avoid or ignore proceedings and commercial necessities in the long-term.

Measuring the True Value of the Debt

Both investors and lenders are constantly over-estimating the true value of bad debts. A different view would lead many lenders to sell assets earlier, and at lower prices, and investors to take a much more selective approach to bad debt transactions. Realistic valuations need to

  • thoroughly assess the legal situation of the debt and underlying asset, taking the country-specific situation and escape mechanisms of the debtor into account;
  • fully understand the enforceability of any claim, and also counterclaims from other lenders, business partners, and the debtor;
  • make a realistic assessment of the value of the underlying assets, taking into account any expected time delays, run-down of assets, negative publicity, etc.;
  • estimate the time to market, comprising negotiations, enforcement, selling of claims and assets. In our experience, the time needed is practically always two times higher than initially planned;
  • understand any additional investment need for legal proceedings, appropriation, subsequent asset management incl. additional CAPEX/OPEX, asset sale, etc.

Understanding the Assets

For any debt investment, the same wisdom holds true as for equity transactions. Only invest in debt, when you understand the underlying business, industry, and country of the debtor, otherwise do not touch it, even if the price and yield appeal to the greed factor. Too many debt investors and banks who appropriate assets from bad loans treat bad debt transactions as a pure financial game. Rough awakening guaranteed.

Beware of Poison Pills / Install Poison Pills

Take is as granted, that the debtor does not want to pay back the debt and accumulated interests. Depending on the legal seat of the debtor and the location of any pledged assets and the nature of the assets, there are plenty of obstacles that can be built to render the task of appropriating an asset extremely costly and lengthy or to devaluate the asset. We have seen many surprises and unlimited creativity in this area.

Junk vs. Value Strategies

The ever-interesting question in this field. Both strategies can work, junk strategies will need the extra stamina from the investor and require a very strong understanding of the local market conditions and powerful local boots on the ground. Nothing for the new-comer to the market. Also, beware of the debt market life cycle.

Timing Traps

Debt investors need to have the financial power to live through years of legal proceedings and commercial negotiations. Expecting the unexpected, especially in timing, is quintessential to survival.

Compliance Tag

Debt recovery and enforcement can be a dirty business. And opponents will fight back, with legal, half-legal and sometimes criminal means. Legal and commercial loop-holes in some countries allow for situations, unthinkable in others. In case that the reporting, legal or compliance regulatory frame is too strict or in case that one is not ready to answer the knife attack of opponents with a gun, it is better to stay outside of the Saloon.


Open and transparent negotiations, ideally moderated by a neutral party, tend to be in most of the cases the best, most efficient and fastest way for conflict resolution. However, sometimes both parties have to get bloody noses before a real negotiation process can start, sometimes it never happens. In these cases, the winner will collect the whole lot, but often the value is then already negligible. Yet, over and over again, players are overestimating their bargaining position and enforcement or obstruction options or do not dare to tell the ugly truth of losses to their superiors – which lead in turn to unrealistic expectations, vast time delays and a further destruction of value.

Moral Hazard and Inflated Egos

Last but not least, one of the most important factors in bad debt deals – the human factor. The success of bad debt deals is not decided by spreadsheets, but by human beings, and the negotiation processes are highly sophisticated interactions in which psychology and the right tactics often make the difference between make and break. Both for lenders/investors and debtors there is one very common attribute that we observe and that often proves to be disastrous and very costly for the respective party: lenders and investors lean towards punishing debtors for not willing to pay back the debt (also as deterrent for other failing debtors) or towards envying them realizing a profitable debt restructuring. Debtors lean towards overestimating their own power and control position and are often driven by personal ego and pride vis-à-vis lenders, employees and business partners, not recognizing the need for drastic changes.

Bad debt deals can be highly rewarding, especially in highly volatile economies like Ukraine. The investors and debtors, who are ready to invest in appropriate planning, who are disciplined in their execution and ready to test unchartered waters are in for the extra yield.

On VI2 Partners

VI2 Partners is an independent investment company that invests on its own books and provides a full range of investment banking services. The activities of VI2 Partners are aimed at ensuring economic growth, efficiency and increasing customers’ profitability. Our qualified and experienced team plans, scouts and executes investment opportunities, performing customers’ tasks on a high-quality level, above the accepted standards.

VI2 Partners specializes in portfolio assets management, direct investments, investment banking, ICO, capital raising and debt restructuring, services for investors to enter new markets (Ukraine and Eastern European counties, EU). We also provide services for the assets acquisition and protection in Ukraine for international investors, develop mechanisms for the complex structured transactions’ regulation, provide services for the problematic assets’ management and their transformation into sellable investment products, M&A.

Founded by Mr. Alexei Chernyshov and Dr. Marc-Milo Lube, the company operates in CEE and Western Europe markets, with registered offices in Vienna (Austria) and Kyiv (Ukraine). VI2 Partners actively cooperates with commercial, government structures and investors around the globe, with whom we built long-term relationships based on the principles of transparency, trust, effectiveness, and confidentiality.


Tuchlauben 7, A 1010 Vienna, Austria
+43 1 925 7575

KYIV Office
4, Volodymyrska Str., Kyiv, 01001, Ukraine
+38 044 364 5203

Contacts for media

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2018/Q1 Ukraine Newsletter


Dear Partners and Friends,

kindly find attached VI2 Partners newsletter on the recent developments in Ukraine as well as a quick overview of the latest important news and some statistics contributing to the whole dynamics of Q1 2018. We are experiencing positive developments from Tesla’s Hyperloop test site project in Dnipro to traditional industry players from US and Asia investigating or entering the market in Ukraine. Industrial and agricultural assets are still valued at very low levels, the time has come for the strategic investors.

Read more in our latest newsletter!

UA NewsL 118

VI2Partners Ukraine Newsletter Q12018

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2017/Q4 Ukraine Newsletter


Dear Friends and Partners,

Please find attached our VI2 Partners Q4 2017 newsletter on recent developments in Ukraine and on our activities.

Slowly, but consistently, Ukraine is breaking through the political and economic turmoil. Ukraine has climbed four positions in the Doing Business 2018 raking of the World Bank and advanced 105 positions in the field of ease if obtaining construction permits as well as 41 positions upwards in the indicator “tax payment”.

The Government is proceeding with the reforms to raise the effectiveness of the national economy and encourage local as well as international businesses to invest and develop their capacities in Ukraine. The net inflow of FDI in Ukraine in January-September increased 40 % in comparison with 2016.

However, a slow-down in the fight against corruption and recent setbacks in that regard have raised the attention of foreign investors and Governments and should be watched carefully.

Overall, there are enough reasons to optimistically look forward to the year 2018.

VI2 Partners would like to express warmest season’s greetings and to wish you and your families a successful and healthy 2018!


Read more in our latest Newsletter

UA NewsL 417

VI2Partners Ukraine Newsletter Q42017

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Dear Partners and Friends,

VI2 Partners is sharing with you the latest newsletter on recent developments in Ukraine and a snapchat of political and economic events in Q3 2017.


Summer was rich in both economic and political highlights. Ukraine started recovering from the crisis triggered by the political turmoil of 2014, the national currency is getting stronger, Ukrainian state-owned companies are finally reporting sufficient surplus with Naftogaz Ukrainy, Ukrenergo, Ukrainian Sea Port Authority, Ukrhydroenergo being among the most profitable state-owned assets (SOE) in 2016, according to the Top 100 SOE report prepared by the Economic Development and Trade Ministry.


Last but not least, Moody’s upgrading the outlook for Ukraine from stable to positive contributed to the overall positive dynamics and virtually serves as the best confirmation of the existing and upcoming positive changes.


Read more in our latest Newsletter

Bildschirmfoto 2017-09-04 um 13.35.00

VI2Partners Ukraine Newsletter Q32017


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2017/Q2 Ukraine Newsletter


Amid the prolonged political instability and financial difficulties, Ukraine’s economy is demonstrating the hidden potential and distinct signs of recovery.

This gives us the reasons to assume, that the country is slowly coming back onto the radars of foreign investors, with upcoming deregulation and institutional reforms contributing to the overall economic upturn.

Read more in our latest Newsletter

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2017/Q1 Ukraine Newsletter


The Lower House of the Parliament of Canada has ratified the free trade agreement with Ukraine. After completion of all the ratification procedures, Canada will abolish duties on 99.9% of Ukrainian imports. In turn, Ukraine will cancel 86% of duties on imports from Canada.

Read more in our latest newsletter.

UA NewsL 17

VI2Partners Ukraine Newsletter Q12017

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Major changes mean major opportunities in 2017

As the White House turns into a reality show inspired boardroom, and major global policy changes are announced and we should better believe they will happen, many CEOs and leaders are still standing on the sidelines!


Wrong! Get prepared, lead and innovate, major changes mean major opportunities. When the rules of the game change, new winners appear and unexpected losers are washed ashore!


When you are still doubtful whether all of what we are experiencing is true or not, read this presentation from Mehlman Castagnetti. Some interesting insights guaranteed.

back briefing


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2016/Q4 Ukraine Newsletter


2016 could be regarded as a year of political and economic consolidation for Ukraine. With the ongoing Ukraine/Russia conflict posing a threat to the future development as well as the new US policy towards the given conflict being yet to forecast, there are definitely plenty of positive signs on Ukraine’s political horizon. We will share quarterly information on the developments in Ukraine in our new UKRAINE NEWSLETTER section.



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Pessimism Report 2017


Please see the Pessimism Report 2017, as it was published today on . They had forecasted for 2016 the Trump Triumph and the Brexit. Chapeau. A little bit dark to read, especially as most of the events described are not entirely unrealistic. But to put it in the words of a famous future Ex-President: The Sun will also rise tomorrow, and Mr. Hawking has promised another 1.000 years to mankind.

The Pessimist’s Guide to 2017

Our view on the probability of these events:


YALTA 2.0: probable

CHINA/US Trade War: probable

KIM TRUMPS TRUMP: not probable


  • Le Pen: not probable
  • Beppo Grillo: not probable
  • Merkel Loses: not probable
  • Schengen Dissolved: not probable
  • Greece Blows Up: not probable


CUBA BACK to USSR: not probable




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Why Trump Will Win

Dear Friends
Please see most interesting contribution of Michael Moore on „Why Trump will win“. An excellent analysis, and explanation why sometimes forecasters and mathematical models do not get it …
Enjoy reading

5 Reasons Why Trump Will Win

Friends: I am sorry to be the bearer of bad news, but I gave it to you straight last summer when I told you that Donald Trump would be the Republican nominee for president. And now I have even more awful, depressing news for you: Donald J.

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