Ecuador bonds should trade with accrued interest, EMTA says

Ecuador bonds should trade with accrued interest, EMTA says

Asset Management Bonds Debt Capital Markets Corporate & Sovereign Strategy Economy & Policy Fixed Income Funds Ecuador Latin America Coronavirus

EMTA, the trade association for emerging markets, recommended on Monday that sellers of Ecuador’s sovereign bonds should be entitled to all accrued and unpaid interest as the country works toward either a full-out debt renegotiation or targeted adjustments to its payments schedule.

Ecuador has reached out to both multilateral lenders and commercial borrowers in the last week, seeking financial assistance and a chance to renegotiate some of its debt obligations in an effort to divert its cash toward fighting the novel coronavirus, COVID-19.

“EMTA is recommending that, for all trades of Ecuador Bonds during their respective grace periods and entered into on or after March 30, 2020, unless otherwise agreed, Sellers will be entitled to and acquire title to all accrued and unpaid interest if paid during the respective grace period, given that Buyers did not pay consideration for such interest,” the association said in a statement posted on its website.

The collapse in oil prices has put the pinch on Ecuador, which relies on the export of the commodity to underpin its national budget. The call for help with its debts was followed by credit rating downgrades by Fitch Ratings and S&P Global Ratings , the later which said that within six months there could be a default, distressed exchange or redemption.

Ecuador is not in default but said that it would use a 30 day grace period to pay interest on some of its bonds due this month. Last week it reiterated a commitment that it would make its last $325 million amortization payment on a 2020 bond that matured on March 24.

The 10.75% March 28 2022 issue traded with a bid price of just 26.25, according to data provider Refinitiv. Further out the curve, the 7.875% January 23, 2028 bond bid at 20.625 late on Monday.

Ecuador's Finance Minister Richard Martínez said the country would tap an emergency loan fund from the International Monetary Fund (IMF) as well as delay the interest payments on its Global 2022, 2025 and 2030 bonds due in March that total about $200 million.

The IMF is to provide Ecuador with $500 million and that another $500 million would come from the combined efforts of the Inter-American Development Bank, World Bank and the Development Bank of Latin America, also known as CAF.

Ecuador, which left OPEC in order to increase its output, produces roughly 540,000 barrels of oil per day. The oil price crash has prompted President Lenín Moreno to announce a series of austerity measures to account for oil dropping under the $51 per barrel the national budget is based upon.

Ecuador has 1,962 confirmed cases of COVID-19, with 60 deaths, according to the Johns Hopkins Coronavirus Resource Center as of Monday afternoon.