Ecuador spat reveals sovereign-debt market cracks

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Investors are suing to halt Ecuador’s restructuring. The case is a long shot, but the country’s tactics will hurt its market-friendly makeover, and the mess may prompt an overhaul of how countries borrow. Three_Guineas

A group of Ecuador’s creditors – including funds run by Contrarian Capital and GMO – filed a class-action lawsuit against the country in New York on July 29 in relation to halt its $17.4 billion restructuring offer that expires on July 31.

They claim Ecuador is violating securities law by making false and misleading comments in a July 27 press release and related documents. They also say the tender offer is coercive and that bondholders would suffer irreparable harm if it goes through because they will either have to agree to what they call unfavorable terms or receive less favorable treatment as a non-tendering bondholder.

On July 13, a steering committee representing dissenting creditors urged the government to improve its tentative terms and proposed its own terms. On July 20, Ecuador released its official exchange offer, and creditors who said they held over 53% of Ecuador’s total outstanding sovereign bonds and around 50% of almost every individual bond series said that they supported the deal.

 

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