Ecuador gets consents to amend bonds, extends exchange expiration

By Sarah Lizee

Olympia, Wash., Aug. 3 – Ecuador announced that based on consents delivered as of 10 a.m. ET on Aug. 3 it had obtained the requisite consents to modify all series of eligible bonds under a consent solicitation for about $17.4 billion of its external bonds, according to a press release.

Ecuador said the final results of the consent solicitation will be communicated following receipt of any additional consents delivered prior to the consent deadline.

The republic also announced its decision to extend the expiration date solely with respect to the invitation to exchange to 11 a.m. ET on Aug. 7 from 11 a.m. ET on Aug. 3.

The consent deadline will not be extended. The consent deadline had previously been extended from 11 a.m. ET on July 31 following a hearing before the U.S. District Court for the Southern District of New York.

As announced on July 20, in an effort to modify the terms of the external bonds Ecuador started a consent solicitation to amend the indentures governing the notes and an exchange offer.

The republic has been working with an ad hoc group of bondholders, who have expressed support for the proposed restructuring.

Eligible bonds

The following are the bonds that are eligible in the offer:

• The $2 billion principal amount outstanding of the 10¾% bonds due March 28, 2022 (ISINs: XS1458516967, XS1458514673);

• The $1 billion principal amount outstanding of the 8¾% bonds due June 2, 2023 (ISINs: XS1626768656, XS1626768730);

• The $2 billion principal amount outstanding of the 7.95% bonds due June 20, 2024 (ISINs: XS1080331181, XS1080330704);

• The $600 million principal amount outstanding of the 7 7/8% bonds due March 27, 2025 (ISINs: XS2058848826, XS2058845210);

• The $1.75 billion principal amount outstanding of the 9.65% bonds due Dec. 13, 2026 (ISINs: XS1535072109, XS1535071986);

• The $1 billion principal amount outstanding of the 9 5/8% bonds due June 2, 2027 (ISINs: XS1626529157, XS1626530320);

• The $2.5 billion principal amount outstanding of the 8 7/8% bonds due Oct. 23, 2027 (ISINs: XS1707041429, XS1707041262);

• The $3 billion principal amount outstanding of the 7 7/8% bonds due Jan. 23, 2028 (ISINs: XS1755432363, XS1755429732);

• The $2.125 billion principal amount outstanding of the 10¾% bonds due Jan. 31, 2029 (ISINs: XS1929377015, XS1929376710); and

• The $1.4 billion principal amount outstanding of the 9½% bonds due March 27, 2030 (ISINs: XS2058866307, XS2058864948).

Consent solicitation

Noteholders who tender their consents will, with respect to all bonds, give effect to the following amendments:

• Eligible bonds will have the same maturity and economic terms of the new 2040 bonds, but will reduce the principal amount to $911.30 principal amount of notes for each $1,000 principal amount of notes originally due;

• Remove limitations on exchange offers and the issuance of new notes in the context of consent solicitations; and

• Reduce the single series modification threshold for approval of non-reserve matters to above 50% from at least 66 2/3%.

Additionally, the consents will give effect to the following for all of the notes, except the 2024 bonds:

• Exclude from the events of default cross-defaults, and defaults arising from the entering or issuance of judgments and arbitral awards relating to, any eligible bonds (whether or not modified), any new securities, the 7¼% social housing notes due 2035 issued by the republic, and the 4 5/8% notes due 2021 issued by La Empresa Publica de Exploracion y Explotacion de Hidrocarburos Petroamazonas EP and guaranteed by the republic; and

• Eliminate some requirements to waive events of default.

Consents for the 2024 bonds will:

• Remove all covenants and events of default (except for events of default relating to the payment of principal amounts);

• Incorporate collective action modification provisions for multiple series aggregation, including with securities issued under indentures having similar provisions; and

• Incorporate provisions to permit the republic and the trustee to agree to certain technical modifications without the consents of noteholders, as well as to add covenants or security interest to the benefit of holders.

Further consents

Noteholders who deliver consents are agreeing to:

• Waive any defaults and cross-defaults that may have occurred or will occur under the eligible bonds including any failure by the republic to pay interest and any additional amount on each originally scheduled payment date between March 27 and Sept. 1, a default under any series of bonds for which the required consents are not obtained on or prior to the consent deadline and the entering or issuance of judgments or arbitral awards relating to any series of eligible bonds where the consents are not obtained by the deadline;

• Waive any claims of default or cross-default now or in the future, deeming them cured upon effectiveness of the proposed modifications and consummation of the invitation; and

• No interest will accrue on the amount of interest between the originally scheduled payment date of the eligible bonds and Sept. 1.

Tender offer

Noteholders who consent will also submit a tender order to exchange their notes for new securities.

Noteholders may not consent without tendering their notes or vice versa.

Tendering noteholders will receive new securities in exchange for their notes plus 86% of the accrued interest due up to the settlement date in the form of a new 0% bond due 2030.

Tendering noteholders who deliver consents after the deadline will not receive the payment in kind of interest.

If there is full participation in the invitation, the new securities offered in the exchange will include:

• Up to $3.768 billion of new 2030 bonds;

• Up to $8.606 billion of new 2035 bonds;

• Up to $3.46 billion of new 2040 bonds; and

• New zero-coupon bonds due 2030 to pay interest.

Distribution of securities

New securities distribution is reflected below:

• $1,000 principal amount of notes of eligible 2022 bonds will be exchanged for $300 of new 2030 bonds, $495.30 of new 2035 bonds and $116 of new 2040 bonds;

• $1,000 principal amount of notes of eligible 2023 bonds will be exchanged for $229 of new 2030 bonds, $495.30 of new 2035 bonds and $187 of new 2040 bonds;

• $1,000 principal amount of notes of eligible 2024 bonds will be exchanged for $300 of new 2030 bonds, $495.30 of new 2035 bonds and $116 of new 2040 bonds; and

• $1,000 principal amount of notes of eligible 2025 bonds, 2026 bonds, both series of 2027 bonds, 2028 bonds, 2029 bonds and 2030 bonds will be exchanged for $189 of new 2030 bonds, $495.30 of new 2035 bonds and $227 of new 2040 bonds.

Zero-coupon bonds

Zero-coupon bonds for the interest due will be distributed in the following amounts:

• For the 2022 bonds, noteholders will receive $78.92 of the new 2030 bonds;

• For the 2023 bonds, noteholders will receive $50.78 of the new 2030 bonds;

• For the 2024 bonds, noteholders will receive $42.68 of the new 2030 bonds;

• For the 2025 bonds, noteholders will receive $57.89 of the new 2030 bonds;

• For the 2026 bonds, noteholders will receive $53.51 of the new 2030 bonds;

• For the 9 5/8% 2027 bonds, noteholders will receive $55.90 of the new 2030 bonds;

• For the 8 7/8% 2027 bonds, noteholders will receive $59.78 of the new 2030 bonds;

• For the 2028 bonds, noteholders will receive $36.07 of the new 2030 bonds;

• For the 2029 bonds, noteholders will receive $47.59 of the new 2030 bonds; and

• For the 2030 bonds, noteholders will receive $69.92 of the new 2030 bonds.

Conditions for offer

The invitation is subject to conditions that cannot be waived by the republic.

Namely, there needs to be a staff-level agreement announced regarding a program with the IMF by the settlement date.

Additionally, an opinion needs to be received by the trustee on the settlement date of an opinion from the general legal coordinator of the Ministry of Economy and Finance with respect to certain legal matters relating to the new securities and the new indenture.

Additionally, consents and tender orders for at least 80% of the aggregate principal amount of notes of all series of eligible bonds must be received.

Offer details

Settlement is now expected to occur on Aug. 12. Settlement had to occur by Aug. 20, but the republic has the right to extend the offer to Sept. 1 with the consent of the holders representing a majority of the aggregate principal amount of notes outstanding.

The new indentures are expected to be implemented on Aug. 7.

Citigroup Global Markets Inc. (800 558-3745, 212 723-6106, ny.liabilitymanagement@citi.com) is the dealer manager.

Global Bondholder Services Corp. (212 430-3774, 866 470-3800, fax: 212 430-3775/3779, 212 430-3774, contact@gbsc-usa.com) is the information, tabulation and exchange agent.

Lazard Freres is the financial adviser to Ecuador.

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