Ecuador Wins Approval to Restructure $17.4 Billion of Debt

Ecuador has won the support of enough bondholders to restructure $17.4 billion in international debt, almost a third of its total foreign obligations.

President Lenin Morenos government will exchange 10 existing notes maturing between 2022 and 2030 for three new bonds due in 2030, 2035 and 2040. Under the new terms, interest payments will resume at the beginning of next year, while the earliest principal comes due in January 2026.

“With this, we free up resources for social protection and economic recovery,” Moreno wrote in a tweet.

The debt accord gives Ecuador breathing room, well beyond when Morenos term ends next May. Still, political opponents have criticized the president and his finance team for not taking a more aggressive approach in the restructuring talks. At the same time, the government won praise from key creditors who said officials were more reasonable than their counterparts in Argentina, where negotiations have dragged on for months.

Creditors holding more than 95% of the bonds backed the government proposals, far beyond the 67% and 75% thresholds required, Finance Minister Richard Martinez said in an online press conference. The deal also paves the way for eventual new bond issuance, he added.

The Moreno government faced a late challenge when two creditors -- Greenwich, Connecticut-based hedge fund Contrarian Capital Management LLC and Boston-based GMO -- asked U.S. District Judge Valerie Caproni in Manhattan to block the restructuring, calling the nations tactics “coercive in the extreme.” She denied that request on Friday.

Ecuador‘s Finance Ministry said it will extend the deadline for creditors to participate in the debt offer until Aug. 7 to allow for holders who didn’t vote yet. The target date for the bond exchange is Aug. 12.

The bonds Ecuador is restructuring are close to a third of its foreign debt. Of the rest, Ecuador is aiming to reprofile bilateral debt with China, as well as obtain new Chinese loans for $2.4 billion. It is also negotiating a successor deal to the International Monetary Funds $4.2 billion agreement that collapsed amid the Covid-19 crisis.

Results of the negotiation with China will be announced this week, Martinez said. Even with the reduction in bond interest payment and the expected loans from China, Ecuador needs to obtain $4 billion in external funding to close a budget gap this year.

Ecuador embarked on a debt-sale spree in 2014 to offset a decline in the price of oil, its main export. Mounting financial trouble led the country to sign the pact with the IMF in early 2019. Its debt woes were exacerbated by the pandemic. Ecuador is suffering one of the worlds highest death rates from the virus.

(Updates with comments from Finance Minister Richard Martinez)