Ecuador May See Bondholder Suit: Barclays

With most of the likely restructuring scenarios for Ecuador’s $4bn in global bonds yielding $20-$30, it appears some bondholders may be considering resorting to legal action, Barclays says in a report. Local news and wire reports emerged Tuesday describing the findings of the Correa government’s debt audit commission – due to be fully released Thursday – characterizing the sovereign’s 2012, 2015 and 2030 bonds and other debt as “illegitimate.” It is not yet clear what type of restructuring options the government will pursue, though it missed a $30m coupon payment last week in order to use the grace period to continue evaluating repayment. Barclays finds that holders could see exit values of $27-$40 if Ecuador agrees to a 50% haircut, or $28-$65 in a scenario where it renegotiates coupons at 50% of the original amount. The shop does not consider a complete repudiation of the debt likely, as this does not appear to be Ecuador’s goal.