Ecuador’s debt restructuring faces setback after some creditors balk
Ecuador is under pressure to sweeten its $17.4 billion debt restructuring after some bondholders objected to the terms of the deal it outlined earlier this month.
The country – one of the poorest in Latin America – said in March it would not be able to repay all its debts as it deals with the fallout from Covid-19 and collapsing prices petrol. Earlier this month, the government announced a provisional agreement to reduce and lengthen repayments, with the support of holders of around half of its bonds, including heavyweights Ashmore and BlackRock.
But not all bondholders are on board, echoing a struggle between bondholders Argentinian debt in default. This week, two groups of bondholders – one advised by UBS and BroadSpan Capital, and another holding bonds maturing in 2024 – submitted a counter-proposal, calling for changes they said would collect “the support of a super majority of bondholders”.
“Ecuadorians were very keen to announce the good news that they have a lot of bondholders who support a deal, but you need [more]said Mike Conelius, who manages the emerging markets bond strategy at T Rowe Price and is a member of the UBS group. “They started celebrating before the ball was in the net.”
Ecuador’s original plan called for bondholders to accept a 9% cut in capital repayments, save Ecuador over $1.5 billion. It would also give the country partial debt relief of $10 billion over the next four years and another $6 billion thereafter as it tries to sort out its finances.
Groups opposed to the deal, which say their holdings exceed 35% in some sets of bonds — more than enough to complicate a deal — have made a counteroffer that ties redemption cuts to Ecuador to strike a new deal. loan agreement with the IMF.* Average interest payments would be 5.8%, compared to 5.3% in the original plan. The government has not publicly responded to the counter-proposal.
Mr Conelius, who is also a member of a separate Argentina-focused group involving BlackRock and Ashmore, said Ecuador must avoid repeating Argentina’s “mistakes” in its talks with creditors. “You shouldn’t make the same mistake as the people right in front of you,” he said, comparing her to “two people tripping on the same sidewalk.”
Siobhan Morden, head of Latin American bond strategy at Amherst Pierpont Securities, said the emergence of a group of minority creditors with a counteroffer had made things “much more complicated”, especially since they require environmental, social and governance criteria to be taken into account in the issuance of a new long-term bond. It’s “coming out of a typical restructuring,” she said.
“The two parties are now very far apart, just weeks away from the mid-August deadline” to reach a final agreement, she said.
Mr Conelius said ongoing negotiations were still “constructive” and he was confident both sides could move forward.
Ecuador has struggled to keep international investors on its side as it solve their debt problems. In March, he paid $341 million to bondholders when many critics at home argued he should default and use the money to fight the coronavirus instead.
While negotiating with bondholders, it is also trying to secure a new loan deal with the IMF, restructure its debt to China, and provide new loans to Chinese banks.
*This article has been modified to reflect the voting power of the opposition group