By Esteban Duarte, Maria Elena Vizcaino and Natasha White
(Bloomberg) –The world’s biggest ocean friendly debt swap is coming together in Ecuador, with Credit Suisse Group AG offering a yield of less than 6% on a new bond, according to people familiar with the matter.
Proceeds from the bond sale will fund the purchase of Ecuador’s heavily discounted sovereign debt, providing savings the government will use to protect the Galapagos Islands, said the people, who asked not to be identified because they’re not authorized to speak about it.
“This is a positive development as it will reduce debt servicing, and in the short term it could lead to a new floor in debt prices,” said Ramiro Blazquez, head of strategy at BancTrust & Co. in Buenos Aires. “The government would end up repurchasing its debt at a deep discount indirectly financed by a blue bond, but its new debt will be a loan owed to the special-purpose vehicle.”
The Swiss lender agreed to buy $1.63 billion of the sovereign debt from bondholders in a tender for up to $800 million, according to a regulatory filing on Thursday. The bonds due in 2040 gained about 4 cents Friday to trade at 36 cents on the dollar, the highest since mid-February.
The new securities, which benefit from multilateral guarantees, are expected to be rated by Moody’s Investors Service at Aa2, the third-highest investment-grade score. That’s 16 notches above the nation’s foreign-issuer rating.
Existing debt due in 2040 sold by Ecuador, which has defaulted 11 times on its overseas bonds since its independence in 1830, yields about 16%.
The new Galapagos bonds will be issued by the GPS Blue Financing DAC, a special purpose vehicle. The issuer will then lend the funds to the Ecuadorean government with an insurance from the US International Development Finance Corporation. The transaction also benefits from a $85 million guarantee from the Inter-American Development Bank.
The transaction comes just as the odds President Guillermo Lasso will skirt an impeachment attempt increase.
Representatives for Ecuador and Credit Suisse declined to comment.
Terms of the Tender
Face value accepted
Bonds due 2030
53.25 cents per dollar
Bonds due 2035
38.5 cents per dollar
Bonds due 2040
35.5 cents per dollar
Source: Credit Suisse
The sale is a major development for Ecuador, which before the recent Credit Suisse purchases had about $17.3 billion outstanding of dollar bonds. The nation’s debt due in 2030 advanced 3 cents to 55 cents on the dollar Friday, according to indicative prices compiled by Bloomberg.
“The results of the tender indicate that the market believes Ecuador’s bonds are under-priced,” said Katrina Butt, an economist for emerging markets at AllianceBernstein in New York. “Prices today are adjusting to reflect that shift in sentiment.”
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.