On Thursday, Ukraine struck a restructuring agreement on some $18 billion in Eurobonds with a group of creditors headed by Franklin Templeton. The deal calls for a 20% writedown and a reprofiling that includes a maturity extension of four years and an across-the-board 7.75% coupon. All told, Kiev should save around, let’s just call it $4 billion once everything is said and done (there are some miscellaneous loans and bonds that still have to be worked out).

That’s the good news.

The bad news is that Ukraine also owes $3 billion to Vladimir Putin.

Now obviously, owing Vladimir Putin $3 billion is not a situation one ever wants to find themselves in, but this particular case is exacerbated by the fact that Putin did not loan the money to Ukraine as we know it now, he loaned the money to a Ukraine that was governed by Russian-backed Viktor Yanukovych. Of course Yanukovych was run out of the country last year following a wave of John McCain-attended protests.

Well, one thing led to another and here we are 18 months later with a festering civil war and a sovereign default and on Thursday, Ukrainian finance minister Natalie Jaresko offered the same restructuring terms to Russia that it offered to Franklin Templeton and T. Rowe. In effect, Jaresko was attempting to tell Vladimir Putin that Ukraine would allow him to take a 20% upfront loss on the $3 billion he loaned to Yanukovych who was overthrown by the current Ukrainian government with whom Moscow is effectively at war. As you might imagine, Putin was not at all interested.

So what happens now?

Well, it’s very simple actually. Someone owes Vladimir Putin $3 billion which he intends to collect in full and he could care less if Franklin Templeton and T. Rowe Price are willing to take a 20% hit.

Who’s going to pay him, you ask? Probably the US taxpayer. Here’s BofAML:

The $3bn Russian bond is included in debt restructuring, but Russia will not participate in debt restructuring and will either be paid $3bn from reserves in December or there will be a political decision to agree on an extension, likely without haircuts. We believe the $3bn bond is likely to be classified as sovereign debt and the IMF would likely be forced to pay it (as a holdout) in order to continue the program in December.

Got that? The IMF (so, the US with the tacit support of the taxpayer) is going to pay Vladimir Putin his $3 billion which he loaned to Viktor Yanukovych who the US effectively helped to overthrow.

And if that isn’t hilarious enough for you, consider that the rationale behind paying Putin 100 cents on the dollar is that the IMF needs to be able to justify the continual flow of IMF bailout funds to Kiev, some of which must be used to pay Gazprom which immediately remits the funds to Putin’s personal money vault.

So in a nutshell, the US is going to pay Putin in order to ensure that it can continue to pay Putin.

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Bonus: Ukraine restructuring decision tree