Ecuador's creditors say sovereign needs to improve restructuring offer

Ecuador's creditors say sovereign needs to improve restructuring offer

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

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Creditors holding Ecuador's sovereign debt issued a statement on Friday saying they commended to government for its approach to restructuring $17.4 billion worth of bonds but that terms needed to be improved and strengthened for the equal treatment of all investors.

The statement was issued by two groups of investors. The Steering Committee (SC) for more than 25 global institutional investors who hold various sovereign bonds is being advised by BroadSpan Capital and UBS while the ad hoc group of investors who hold Ecuador 2024 notes is being advised by Quinn Emanuel Urquhart & Sullivan LLP.

"Although bureaucratic delays prevented restricted engagement with Ecuador until this point, the SC and 2024 Group are of the view that the publicly released Heads of Terms must be improved and strengthened to provide equitable treatment to all parties, guided by a framework for near-term cash flow relief and medium-term debt sustainability," the statement said.

"The Ecuador notes due in 2024 vote separately from other series of notes in any future solicitation. The SC and 2024 Group commend Ecuador on the constructive path they have taken thus far and are fully committed to continue to work with the authorities in good faith to reach an agreement in principle in the very near term," the statement said.

Finance Minister Richard Martinez said in a press conference on July 6 that the government had reached a debt restructuring agreement with a large group of bondholders. The agreement is said to result in a cut in debt payments and an extension of maturities for its foreign debt obligations.

The ad hoc group that reached an agreement with Ecuador is composed of Ashmore Investment Management, AllianceBernstein, Blackrock, Bluebay Asset Management and Wellington Management Co. This group holds almost half the country's notes. Most bonds will require 60% approval by bondholders, while the 2024 bonds will require the approval of 75% of bondholders.

Martinez, in his press conference on July 6, said there would not be any additional payments made this year and that a total of $11 billion dollars that were scheduled to be paid before 2025 had been postponed for later years.

Additionally, he said existing debt capital would be reduced to $15.8 billion from $17.4 billion; interest rates would come down to an average of 5.3% from 9.2%. Currently the highest interest rate is 10.75%, and this will come down to a maximum of 6.9%. Maturities are to be lengthened 12.7 years on average from 6.1 year on average. This will be done by extending the maturity of some bonds to 2040. Currently the longest maturity is 2030. And finally, a grace period was achieved both for capital and interest payments. For the next five years, Ecuador will not make any capital payments.

In Friday's statement, the SC and the 2024 note holders said they had submitted a joint term sheet to Ecuador that addressed what they view as deficiencies in the Heads of Terms.

The dollarized economy tied to low interest rates, weak oil prices and impact of the COVID-19 pandemic has combined to put Ecuador in an economic vise.

Ecuador's 7.85% 2024 bond was up 0.125 points in price on Friday to bid 54.375, according to data provider Refinitiv. The 9.55% 2026 issue was off 0.50 points in price to bid 49.50.