Ecuador's pragmatism shows way for Argentine bond negotiations

Thursday, May 22, 2014

Ecuador moved a step closer to issuing new bonds in international markets after it agreed a deal with its own holdout creditors.

The creditors had refused the country's offer of 35 cents on the dollar back in 2009, following its default on approximately US$3.2bn of 2012 and 2030 bonds in 2008.

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While developments have been scant since 2009, Ecuador's need for raising additional finance in the international markets has seen the country launch a roadshow for potential investors in the hope of drumming up support for a new issue.

In April this year, the administration of President Rafael Correa confirmed it was aiming to issue international bonds, with press reports talking of a sale ranging between US$500mn and US$1bn.

Possibly out of concern that holdouts might seek to litigate in the same way as they have in Argentina, Ecuador may have reached out to a number of the holdouts to establish whether ground existed for a settlement.

BNamericas understands that negotiations on behalf of the holdouts were led by Greylock Capital Management, a New York-based hedge fund that is itself one of the holdouts. Greylock had previously advised on a number of sovereign bond restructurings, including Belize's in 2013.

While not all holders have agreed, according to sources, the price which has not been publicly disclosed as yet would likely be significantly higher than the 35 cents on the dollar that was offered initially in 2009.

As a guide though, while the bonds now trade in the market in the 50s, it is difficult to estimate what that settlement price is given that the claims – 5 years on – are much larger when taking into account the addition to the principal of past due interest, interest on interest and penalty interest.

AJ Mediratta, co-president of Greylock Capital Management, told BNamericas: "Whether you agree with what Ecuador did or didn't do in the past, they have been much more pragmatic in dealing with their problems than Argentina. They've entered into adult discussions with bondholders about how to put it behind them, at a price that is mutually agreeable.

"I think this will clear the way for Ecuador to come back to market and borrow at 7%, when Argentina is still trading at double-digit yields."