Ecuador Buys Back at 35

Ecuador say it has bought defaulted 2012 and 2030 bonds at 35 cents on the dollar, 5 cents above the floor it set last month when announcing the modified Dutch auction to retire the debt. Ecuador does not say how many bonds were repurchased, though analysts expect high participation. There was some $3.2bn outstanding in the two issues before the sovereign started aggressive secondary repurchases via intermediaries last year. “The clearing prices for the bonds reflect the resources of the republic and are responsive to the majority of the offers received,” says finance minister Elsa Viteri in a statement. In addition, holders offering more than that can re-submit at 35 cents until June 3, with settlement June 12. “Our assumption is that the final participation will be quite high (above 90%) for the opportunity of many investors, that do not have the option to litigate, to exit Ecuador debt,” RBS says in a note. The participation rate is likely already 75%-90%, says a veteran LatAm investor who took part, noting that larger investors likely bought the debt cheap and were inclined to sell. He adds that smaller participants are splintered and unlikely to want to pay the costs associated with legal action. Though the government may view the buyback as a success, doubts remain about its ability to access funds in the future, with the possible exception of multilateral lenders. “The credibility of the government has been dramatically damaged by this politically motivated debt default, and we think this will impact Ecuador’s ability to tap the international markets in the future,” says Bulltick.