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. Last Updated: 07/27/2016

UAC Will Help Leasing Unit Pay Back Bonds After Default

The United Aircraft Corporation will help its unit, the Finance Leasing Company, repay $250 million to bondholders after it became the first state-run Russian company in more than a decade to default on a foreign-currency coupon payment, Deputy Prime Minister Sergei Ivanov said.

"The management of United Aircraft is very active in trying to settle the issue," Ivanov said in an interview in his Moscow office. UAC must "act somehow to help" because the state corporation faces a cross default on its debt, he said.

Bond holders are seeking "accelerated" repayment on the securities after FLC missed coupon payments on its $150 million of 10 percent bonds due in 2013 and $100 million of 9.25 percent four-year notes in December. The plane-leasing company is 28.7 percent owned by the Russian government and 51.8 percent by UAC, the state aerospace holding.

No other government-backed company has failed to service its foreign-currency debt since Russia defaulted on sovereign ruble bonds in 1998, said Mikhail Galkin, an analyst at MDM-Bank.

Russian companies have about $100 billion of foreign-currency debt to repay this year and are struggling to refinance loans and bonds as the financial crisis cuts access to funding.

Ivanov, a board member at UAC and a former defense minister, said FLC's previous management was responsible for the default and that an investigation was now being held to discover "whether that was mismanagement or something worse."

"It's a specific case, it has nothing to do with all Russian government-owned businesses and I don't think it will affect Russian bonds," Ivanov said.

Kirill Baranov, FLC's deputy chief executive officer, could not be reached for comment.