The Republic of Ecuador Responds to Certain Press Reports with respect to its Invitation to Consent and Exchange

QUITO, Ecuador, July 24, 2020 /PRNewswire/ -- The Ministry of Economy and Finance of the Republic of Ecuador wishes to address certain press reports regarding its invitation to holders of its eligible bonds to restructure its outstanding debt announced on July 20, 2020.  Certain press reports appear to have been generated by leaks to the press of a letter addressed to the Republic's lawyers from the lawyers of a "Steering Committee" (the "Minority Committee") comprised of Amundi (UK) Limited, Contrarian Capital Management LLC, Grantham Mayo Van Otterloo & Co., and T Rowe Price Associates, Inc., advised by BroadSpan Capital and UBS, along with certain holders of the Republic's 2024 bond.  Instead of participating in the widely supported restructuring, these reports mischaracterized the invitation in an apparent attempt to destabilize the consent process and create uncertainty in the market. 

The Republic's focus is on achieving the best outcome for the people of Ecuador, while at the same time seeking a fair outcome for the bondholders through a process that is open to all bondholders and which fundamentally applies principles of inter-creditor equity.  The Republic is committed to a fair and transparent process and is disappointed that a minority of bondholders seeking to obtain an unfair advantage for their holdings, including of Notes due 2024s.   The terms of the Minority Committee's own proposal, as explained in detail in the Republic's July 21, 2020 press release, did not conform to basic principles of inter-creditor equity and were untenable for the Ecuadorian people. The adoption of that proposal would not only hurt the most vulnerable in Ecuador, but also diminish the quality of the outstanding bonds and create a lose-lose situation for all our stakeholders, particularly bondholders.

Moreover, the Minority Committee's claims are not supported by the terms of indentures under which the outstanding bonds were issued.  In fact, these assertions are a blatant and transparent attempt to set aside the collective action clauses that were expressly agreed and documented in the indentures.  The collective action provisions included in the indentures were meant to be used precisely as part of a process such as the one we are undertaking and allow the Republic to restructure its debt with the consent of a substantial percentage of the holders.   

The Minority Committee asserted that the Republic negotiated with them in bad faith and characterized consent process as "coercive".  Nothing could be further from the truth.  The Republic has been proactively engaged in this process with holders since at least April, eager to find common ground when it became clear that, due to events outside of its control, the Republic would be unable to honor its debt service obligations and that a consensual restructuring, rather than outright default, was in the best interests of all our stakeholders, including bondholders.

As announced on April 17, 2020, the Republic successfully completed a first consent solicitation to amend the eligible bonds and the respective indentures, which provided short-term relief for the Republic and averted a legal default under the terms of said indentures.  In April, more than 91% of holders of Aggregate Eligible Bonds and more than 82% of holders of 2024 Bonds consented to the Republic's proposal.  During the month of June, the Republic formally approached the Minority Committee and attempted to engage in confidential negotiations, but the advisors to the Minority Committee spent two weeks negotiating the wording of Non-Disclosure Agreements, delaying our ability to hold discussions within the available time constraints and pursuant to the timetable agreed with bondholders in the April consent solicitation. 

On July 6, 2020, the Heads of Terms of the proposed restructuring were publicly announced, well before the formal launch of the current invitation, providing transparency and ample time for bondholders to consider them. On July 6, an Ad Hoc Group of holders of over 45% of the aggregate outstanding principal of Ecuador's Eurobonds (the "Ad Hoc Group") agreed to the commercial terms of its proposed restructuring. The Ad Hoc Group has now grown to represent holders of over 53% of the aggregate outstanding principal amount of Ecuador's bonds.  Notably, if the contemplated restructuring is supported by the requisite majorities of bondholders, a comprehensive restructuring can be achieved within the window of time available before any legal defaults would occur. The use of the collective action clauses set forth in the indentures to restructure the terms of Ecuador's bonds and avoid a default is vastly superior to any alternative scenario and would be beneficial to bondholders and the Republic alike.  Our fair, "market-friendly" restructuring proposal, explicitly supported by holders of a majority of the Eligible Bonds, is in stark contrast to the unilateral and coercive offers, hostile defaults and years of time consuming, costly and contentious litigation that other sovereign debt restructurings have witnessed.

The Minority Committee's assertion that the Republic is seeking to "compel" the consent of investors is inaccurate.  The payment of a consent fee in the form of the PDI 2030 Bonds provides a financial incentive for holders to provide their consent to the amendments and accept the terms of the restructuring.  There is nothing improper or unusual in the payment of a consent fee.  Further, the transaction will proceed only if the Minimum Participation Condition is met, therefore ensuring that the transaction moves forward only if we successfully restructure the vast majority of the eligible securities.  Ecuador is acting within the four corners of our indentures, including the modification provisions available upon obtaining the requisite consent from bondholders. The Minority Committee's investors have the same opportunity as any other investor to participate in the consent process and have no basis to argue that they are being treated in an unequal manner.

The Republic started this process with the goal of avoiding a potentially ruinous default through a fair, orderly process within the framework of the existing indentures and the Republic's severely constrained financial position, and remains committed to that goal. The Republic is willing to receive feedback from investors and answer inquiries about the invitation, but in all events it will seek to consummate the restructuring with the consent of the vast majority of its bondholders.

SOURCE The Republic of Ecuador