Ecuador: Exchange deadline extended after legal action

The government agreed last night to extend the deadline for its consent solicitation and exchange offer by one day to Monday 3 August, according to Bloomberg, following legal action by some bondholders who are part of the Steering Committee. The extension came at the request of a US court to allow it more time to review the case. The exchange offer, which was launched on 20 July, was due to close today (31 July, 5pm CET).

The plaintiffs argue the exchange is coercive and based on false and misleading information, and seek injunctive relief, according to court filings (available via Bloomberg). A hearing is set for 2.30pm NY time today, in order for the judge to hear more legal arguments, according to Bloomberg. The lawsuit was filed in the US District Court Southern District of New York on Wednesday (29 July). The presiding judge is Judge Valerie Caproni.

Background to the offer

The terms of Ecuador’s exchange offer are the same as those set out on 6 July in the Agreement in Principle (AIP) with a group of major bondholders (the Ad Hoc Group). The Ad Hoc group held c45% of the debt in aggregate. There was no modification to the offer to reflect the counter-proposal published on 13 July by a second group of bondholders (the Steering Committee) who held more than 25-35% of certain bonds across the maturity spectrum – and thereby conferring a potential blocking stake in some circumstances under the bonds' collective action clauses (CACs). The offer was subsequently launched fairly speedily on 20 July and with a tight timetable of just two weeks. The Steering Committee issued a statement on 20 July quickly rejecting the terms of the offer.

The government has stated it has strong support for its offer. It noted on 21 July that the Ad Hoc Group had increased its support to more than 53%, with over or close to 50% in almost every individual series. Together with informal support beyond the Ad Hoc Group, it noted support had reached near 60%, in touching distance of the relevant voting thresholds for most of the bonds – for all eligible bonds excluding the 24s, that is a) more than 50% of each bond and b) more than 66.67% in aggregate, and more than 75% for the 24s for reserved matter modifications. The government has also set a minimum participation threshold of 80%.