By Claudia Assis and Mercedes Alvaro
NEW YORK (Dow Jones)--Bondholders of Ecuador's defaulted Global 2012 bonds are demanding immediate payment of principal, the first real salvo by the Andean nation's creditors in what is likely to become a hostile debt workout.
According to a report Friday by Ecuador-based Analytica Securities, bondholders owning at least 25% of the 2012s bonds - some $130 million of the $510 million outstanding principal - have notified the government they are demanding accelerated payment on full, face value of the bonds, thus rejecting the country's buyback offer and signaling their willingness to fight it out legally.
"The outstanding principle and interest payments are now due immediately along with the collection costs if payment is not made. The note was delivered to the issuer by the National Association of Banks, which serves as Trustee," the report said.
A representative with the trustee, U.S. Bank Association, did not confirm or deny the letter. Lawyers involved with organizing Ecuadorean bondholders could not be reached Friday, and Ecuadorean officials also could not be reached due to the May Day holiday in the country.
About 30 days after Ecuador defaulted last December, the trustee sent letters to investors alerting them they could resort to the acceleration clause, as the bondholder protection mechanism is known, one investor said.
Now it appears the minimum number of participants - 25% - has been reached, the investor added. For now, he's keeping his options open regarding Ecuador, declining to elaborate further.
The two sides are expected to clash Tuesday at a conference call between bondholders and Ecuador's Finance Ministry officials. The Finance Ministry called the meeting this week, and the call is seen as a possible answer to the trustee's letter.
"This may have been exactly the response bondholders were intending. That is, they may have served notice of the acceleration of payments as a negotiating strategy. By heightening the pressure on the (Rafael) Correa government, they may be seeking to obtain a better repurchase price or a more transparent auction," said Ramiro Crespo, head of Analytica.
Other than serving as a negotiating tool, acceleration is extremely difficult to enforce, as Ecuador does not have much by way of assets in the U.S., he added.
The Correa administration may opt for an agreement with the bondholders, as there may be an understanding with multilateral creditors that a successful repurchase would be a positive sign that Ecuador is willing to act responsibly, Crespo said.
Multilateral lending is one of the few resources available to serial defaulter Ecuador. Investors view the December default even less charitably, as the country is solvent and outstanding debt stock low: the defaulted bonds equal about 6% of oil-rich Ecuador's gross domestic product.
Earlier this week, a person familiar with bondholder organizing efforts said a committee formed to fight against the Andean country was imminent. These investors would hold about $600 million of the $3.2 billionin defaulted bonds, which also include issues maturing in 2030.
Their greatest fear is that Ecuador might have dealt a crippling blow to any type of bondholder organization. Ecuador is rumored to have bought back about $1 billion of the $3.2 billion outstanding. Government officials have declined to comment on the accusations.
Ecuador, which exports oil, metals and agricultural commodities, defaulted following loose allegations the bonds were illegal and illegitimate. Officials have said their 30-cents-on-the-dollar-offer is their first and last proposal to bondholders.
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