Ecuador pushed forward with its debt overhaul plans on Monday, requesting a vote among its creditors on reconfiguring the terms of US$ 17.4 billion of its external bonds, with its largest group of creditors backing the proposal.
Under the proposed deal - unchanged from the government’s earlier proposal - 10 existing bonds maturing between 2022 and 2030 would be swapped for three bonds due in 2030, 2035 and 2040, as well as a past due interest bond maturing in 2030.
This would provide debt relief of more than US$ 10 billion over the next four years and US$ 6 billion more between 2025-2030, and deliver a nominal haircut of 9%.
“This restructuring, if it is accepted, will provide important relief to the country and will allow more resources to be destined to the management of the sanitary crisis and the reactivation and recovery of the economy,” Ecuador’s finance ministry said in a statement on Monday.
A spokesman for the International Monetary Fund said the group “welcomed” Ecuador’s restructuring proposal. Bondholders will have until July 31 to vote on the deal.
Two creditor groups, which have in recent weeks pushed for better terms, rejected the new proposal, saying it did not represent Ecuador’s best efforts to reach an equitable deal.
The steering committee for the group, which includes Amundi, Contrarian Capital Management and T Rowe Price Associates, represents more than 25 institutional investors and an ad hoc group of holders of notes due in 2024.
They have holdings of more than 25% in certain series of the bonds and over 35% in others, according to earlier statements.
Ecuador’s largest creditor grouping, the Ad Hoc Group including asset managers such as AllianceBernstein, BlackRock and Ashmore, is backing the plan.
The group, which collectively holds over 53% of Ecuador’s total outstanding sovereign bonds and close to or more than 50% of almost every individual bond series, said it believed the plan would make “a substantial contribution to ensuring the sustainability of Ecuador’s external debt in the medium term.”
In response to questions about Monday’s proposal, Tiago Severo, Vice President of Latin America Economic Research at Goldman Sachs, said: “It appears a somewhat risky strategy to us, and it may result in a temporary stall in the process.”
“However, we remain of the view that the parties will ultimately find common ground and that a comprehensive restructuring will be achieved in the next few/several weeks,” he said.
The government said it required the support of creditors holding at least 80% of the aggregate principal of all bonds apart from the 2024 issue. The latter, which has different terms, requires 75% support according to legal experts.