Category: Corporate & Sovereign Strategy

Argentina and Spain have signed an agreement setting out the repayment of Argentina’s $982.5 million debt to Spain. The Latin American nation will repay the debt, on which it defaulted six years ago, by 2012, with the outstanding balance adjusting at a rate of 140bp over Libor. The debt forms part of the $6.5 billion still outstanding to the Paris Club group of lenders. The announcement of the agreement, which was first signaled last year, was made Wednesday.

Moody’s Investors Service has joined the other two major international ratings agency in downgrading Ecuador’s sovereign ratings as investor concerns mount over a possible default. Ecuador’s foreign-currency government bond rating and the foreign-currency country bond ceiling were downgraded to Caa2 with a negative outlook from Caa1 with a stable outlook. The outlook on the Caa2 foreign currency deposit ceiling was revised to negative from stable. Moody’s also downgraded the country ceiling for local-currency deposits from Caa1 to Caa2 with a negative outlook. According to Alessandra Alecci, a senior analyst at Moody’s, Ecuador’s “decision to restructure obligations is purely based on ideology”, and “a meaningful alleviation of cash flow could only be obtained by a restructuring with sizeable losses to creditors”.

Recent remarks made by Ecuador’s finance minister Ricardo Patiño regarding the country’s external debt have been generally welcomed by investors. However, not all are persuaded that the government’s desire for a “friendly” debt restructuring is, in fact, achievable. In a research note, Goldman Sachs said that although the minister’s remarks were “certainly more conciliatory” than previous statements, nevertheless, it “did not see in today’s statements anything that would indicate the government is no longer committed to achieve a significant debt reduction (which would imply a significant haircut on principal)”. Moreover, according to the firm, “the possibility of debt-for-cash repurchases also seems clearly contingent on prices in the secondary market reaching default type levels”.

Fitch Ratings has downgraded the long-term foreign currency Issuer Default Rating (IDR) of Ecuador to CCC from B minus, just three notches above default. The ratings action was taken in the light of “pronouncements by the Ecuadorian authorities expressing a high likelihood that they will seek a debt exchange implying a material loss to bondholders (which would be considered an event of default by Fitch) or will fail to make timely debt service payments in full”, and indicates that Fitch believes “default is a real possibility in the near term”. Last week, Standard & Poor’s lowered Ecuador’s long-term sovereign credit rating to CCC from CCC+ and revised its outlook on the rating to negative from stable.

As part of a group restructuring at Elektra, Carlos Septién is to take over as chief executive. Septién comes from Banco Azteca, owned by the group, of which he has been head since 2002. He will take over the reins at the Bank from Javier Sarro, who has been chief executive of Elektra since 2000.

Edemsa, the electricity distributor of the province of Mendoza in Argentina, is to issue bonds worth $110 million, according to a filing with the Buenos Aires Stock Exchange. The issuance of the bonds is part of the company’s debt restructuring program. Four series of the new notes will be issued, two will be offered to existing Edemsa bondholders in exchange for Series 2 or 3 bonds. The other two series of new bonds will be offered in exchange for private debt.