On December 18, 2025, it was announced that Ukraine had agreed – after lengthy negotiations with a group of pre-war investors – to restructure USD 2.6 billion in debt known as “GDP warrants” (see Box 1). The debt restructuring came after Ukraine had already reached an agreement with other pre-war investors in 2024 on ordinary bonds worth a significantly higher amount of more than USD 20 billion.
The IMF had previously rejected several proposals that had been discussed between the Ukrainian government and the GDP warrant holders. The warrant holders include hedge funds Aurelius Capital Management and VR Capital, which have become known as “vulture funds” due to their unethical practices in other critically indebted countries in the past, which includes sueing countries before the UK High Court.
Conversion to Eurobonds defuses a fiscal time bomb
In comparison to the 2024 investor debt restructuring, the GDP warrants were a very small part of the pre-war debt. However, they could have become extremely costly for Ukraine (see Box 1).
The most important positive aspect of the debt restructuring is therefore the conversion of the warrants into conventional Eurobonds. This approach eliminates the risk that, in the event of strong economic growth, many billions of US dollars would have needed to be paid out to warrant holders. This risk arose directly from the instrument’s design and would have been especially pronounced during the reconstruction phase following the extraordinary collapse of Ukraine’s economy caused by the Russian invasion in 2022. According to calculations by the Ukrainian government, between 2025 and 2041 payments to warrant holders could have amounted to between USD 6 billion and USD 20 billion, depending on economic performance in the coming years and the trajectory of post-war reconstruction – up to almost ten times the instrument’s face value in the worst case.
…and facilitates further restructuring
This conversion of the instrument into ordinary government bonds would in theory also facilitate further future debt restructuring of the same claims. Hence, it was also an important goal for official creditors and their institutions. This is due to the fact that the so-called “Group of Creditors of Ukraine,” which mainly comprises creditors from the Paris Club, has committed to restructuring its claims by no later than spring 2027 – meaning this round is still pending.
Only on the assumption of a second debt restructuring, the IMF could classify the relatively minor concessions of pre-war investors in 2024 as compatible with Ukraine’s debt sustainability. This is because in 2024 the investors were able to secure a deal that was significantly more beneficial for them than the one originally proposed by Ukraine (see Global Sovereign Debt Monitor 2025 and analysis of the 2024 Deal). This probably also applies to the deal with the warrant holders, who also managed to achieve a significantly better deal than Ukraine had initially offered them and who were granted more favorable treatment than other pre-war investors.
…at least in theory
For the official bilateral creditors, the red line was therefore that the agreement must not contain any provision permitting the reinstatement of the warrant instrument, which is considerably more challenging to restructure.Although this red line was respected, the warrant holders succeeded in including a clause that effectively renders further debt restructuring considerably more difficult.
The hidden price of compromise
Loss reinstatement clauses (LRCs) are actually intended as a reset button in the event of multiple debt restructurings: if certain contractually specified events occur, they enable private creditors to reinstate the nominal value reduced in the restructuring to its original value prior to the restructuring, either in whole or in part. This would be equivalent to treating the debt as if no restructuring had occurred.
Intended as a technical reset rule, this clause serves as deterrent in the case of Ukraine: this is because the LRC in the case of Ukraine, that was pushed through by the warrant holders, does not simply restore the original state. Through additional agreements in the LRC, the bondholders are attempting to make a second debt restructuring less appealing. They would substantially complicate similar concessions to the officialsector.
The LRC is triggered if Ukraine defaults, seeks another debt restructuring, or includes the claims in a single-limb collective action decision. In this case, the bond becomes immediately due and interest accrues at a rate of 7.75 percent per annum.
However, the bond will not mature at its original face value of US$2.6 billion. Instead, it will mature at the “loss reinstatement amount.” This is calculated as follows:
- Take the original value of the GDP warrants.
- Subtract everything that investors have received since then.
- Add 7.75 percent interest (plus compound interest) to the remaining amount. However, this is not calculated from the date of the restructuring, but from November 12, 2015, the date of the very first debt restructuring from which the warrants originated (see Box 1).
This calculation artificially inflates the claims massively. But on top of this cost trap, the warrant holders have secured yet another layer of protection:
- If, in addition to the debt restructuring of the former warrants, the claims of the other pre-war investors are also included in the debt restructuring and a so-called single-limb collective action decision is reached, the amount due on the claims of the former warrant holders would automatically be increased until it represents at least 31.43 percent of the total debt involved. In this way, the former warrant holders want to prevent themselves from being outvoted – and thus effectively obtain a veto right. This is because in single-limb collective action decisions, several different bonds are grouped together and there is only one joint vote, in which a single qualified majority is sufficient. In this way, individual creditors cannot block debt restructuring, even if they only hold a specific bond. However, this mechanism is rendered ineffective since the claims of the warrant holders would be heavily inflated in case Ukraine includes them in a single-limb collective action decision.
The reference to the single-limb majority decision is of central importance because it undermines the logic of voluntary, market-oriented debt restructurings. Clauses that are intended to enable majority decisions become an instrument of blockade and a cost trap.
When voluntary debt restructuring is not enough
The fact that investors in the 2024 debt restructuring have also incorporated similar mechanisms further exacerbates the problem. Here, too, a clause is triggered in the event of a second debt restructuring that does not simply revert investors to the same position as if the debt restructuring had never taken place. Instead, the original bonds are to be treated as if they had been in default the entire time until the clause was triggered, with default interest accruing accordingly. This default interest is to be charged at the significantly higher interest rate of the original, non-restructured bonds. This also artificially inflates the total amount that needs to be restructured.
In the past, creditors in particular repeatedly emphasized in discussions on the reform of debt relief procedures that the market-based voluntary approach worked well in debt restructuring to negotiate sufficient debt relief. Their reasoning was therefore based on the claim that no further systemic reforms were needed, as often demanded by civil society. The market-based approach means that debt restructuring is based solely on contractual agreements and the voluntary consent of creditors, without any overarching legal rules. Enabling single-limb collective action decisions through modern clauses in bond agreements has indeed helped to make it less likely that specific bond restructurings will be undermined by individual uncooperative creditors. In the case of Ukraine, this dynamic has now been reversed.
This illustrates that a large-scale debt restructuring offering substantial debt relief, which war-torn Ukraine will need, cannot rely solely on voluntary, contractual solutions. That is why a statutory backstop is needed to enforce fair creditor participation. The Coalition of the Willing for Ukraine within the G7, together with the Paris Club, should take action here. In the context of the French G7 presidency in 2026, it should address the lack oflegal protection and discuss the creation of relevant statutory backstops. This has already happened in other extraordinary cases in other countries (see examples here).
Box 1 – What exactly are GDP warrants?
Ukrainian GDP warrants are government debt instruments, like bonds, but differ in terms of risk and payment structure. These are contingent payment instruments, so payments do not take the form of regular interest like standard bonds, but vary with GDP and economic growth. They are used in debt restructuring to make debt restructuring more attractive to private creditors. The GDP warrants relevant here were created as part of Ukraine’s 2015 bond restructuring and replaced the old bonds.
The GDP warrants had a notional amount equal to the 20% principal haircut bondholders took in the 2015 debt restructuring. They provided for payments in the period 2021 to 2040. As long as GDP remained below US$125.4 billion and real growth remained below 3%, no payments were made. With economic growth of 3–4%, holders received 15% of the value of that GDP growth, and with growth above 4%, they received as much as 40%. From 2025 onwards, there was no upper limit on payments.
This instrument was extremely lucrative for creditors: while the 20% haircut in 2015 was small compared to the potential payments, warrant holders stood to gain significantly larger payments from future economic growth. In 2025, Ukraine eventually defaulted on these warrants.