Ecuador, bondholder group agree in principle on restructuring

By Wendy Van Sickle

Columbus, Ohio, July 6 – Ecuador and an ad hoc group of institutional holders of its external international bonds have reached an agreement in principle on indicative commercial terms for the restructuring of all series of the republic’s $17.4 billion in outstanding sovereign bonds, according to a news release.

The institution holders include funds managed or advised by AllianceBernstein, Ashmore Investment Management Ltd., Ashmore Investment Advisors Ltd., BlackRock Financial Management, Inc. and its affiliates, BlueBay Asset Management LLP and Wellington Management Co. LLP.

Discussions are continuing with other bondholder groups, according to the release.

The indicative terms contemplate a consent solicitation to amend the existing bonds and an exchange offer for three new series.

The consent solicitation and exchange is expected to constitute the second and final step in a process that began on March 24, when the republic announced that its liquidity constraints prevented it from honoring its upcoming debt payments and subsequently launched a consent solicitation to defer to Aug. 15 with interest payments due between March 27 and July 15.

The consent solicitation is expected to be launched soon and to include modifications to covenants and some technical changes to the approval process for the modifications.

If the consent solicitation is approved and the exchange consummated, “the terms of the new and amended bonds are expected to provide Ecuador with significant liquidity relief to recover from the current crisis,” the release states.

“The transaction will make a substantial contribution to ensure the sustainability of Ecuador's external debt in the medium term and pave the way for strong and long-lasting economic growth.”

It is expected that the transactions will result in debt relief exceeding $10 billion over the next four years and $6 billion more between 2025 and 2030; a 42% reduction of Ecuador's average contractual coupon rate to 5.3%; a doubling of the length of the yield curve to 20 years from 10 years; and a nominal haircut of 9%.

Exchange offer details

Under the exchange offer, each $1,000 principal amount of existing bonds would be exchanged for a package of $911 of new bonds due 2030 and 2035, both to be issued at a discount, and 2040 bonds to be issued at par.

The $3.77 billion of 2030 notes would bear annualized interest of ½% in 2021; 5% in 2022; 5½% in 2023; 6% in 2024; and 6.9% in 2025 through 2030.

The $8.61 billion of 2035 notes would bear annualized interest of ½% in 2021; 1% in 2022; 2½% in 2023; 3½% in 2024; 5½% in 2025 and 6.9% in 2026 through 2035.

The $3.46 billion of 2040 notes would bear annualized interest of ½% in 2021 and 2022; 1½% in 2023; 2½% in 2024; 5% in 2025 and 2026; 5½% in 2027; 6% in 2028; 6½% in 2029 and 6.9% in 2030 through 2040.

Accrued interest on existing bonds would be compensated through the issuance to consenting bondholders only of a zero-coupon new 2030 bond that would be issued in an amount equal to 86% of accrued interest and would pay principal in 10 semiannual installments starting in January 2026.

The existing bonds include the:

• 10¾% notes due March 28, 2022 (ISINs: XS1458516967; XS1458514673);

• 8¾% notes due June 2, 2023 (ISINs: XS1626768656; XS1626768730);

• 7.95% notes due 2024 (ISINs: XS1080331181; XS1080330704);

• 7 7/8% notes due March 27, 2025 (ISINs: XS2058848826; XS2058845210);

• 9.65% notes due Dec. 13, 2026 (ISINs: XS1535072109; XS1535071986);

• 9 5/8% notes due June 2, 2027 (ISINs: XS1626529157; XS1626530320);

• 8 7/8% notes due Oct. 23, 2027 (ISINs: XS1707041429; XS1707041262);

• 7 7/8% notes due Jan. 23, 2028 (ISINs: XS1755432363; XS1755429732);

• 10¾% notes due Jan. 31, 2029 (ISINs: XS1929377015; XS1929376710); and

• 9½% notes due March 27, 2030 (ISINs: XS2058866307; XS2058864948).

For the existing 2022 and 2024 bonds, the new bond allocation would be 30% 2030 bonds, 49.53% 2035 bonds and 11.6% 2040 bonds.

Holders of 2023 bonds would receive for their bonds, new bonds allocated at 22.9% 2030 bonds, 49.53% 2035 bonds and 18.7% 2040 bonds.

For all other series of existing bonds, the new bond allocation would be 18.9% 2030 bonds, 49.53% 2035 bonds and 22.7% 2040 bonds.

© 2015 Prospect News.
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