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Monday, May 25, 2009

Ecuador Bond Buyback Participation Is Seen At Above 90%

NEW YORK (Dow Jones)--Ecuador could repurchase around 90% of its defaulted bonds as too few bondholders, it appears, have rallied sufficient support among fellow investors to undercut the government's offer, an RBS Securities strategist and a New York investor said.

The deadline to submit offers to sell Global 2012 and 2030 defaulted bonds back to the government expired at noon EDT Friday, and holders of 2030 bonds did not reach the 25% necessary to demand acceleration of payments.

"A lot of the people that were talking about holding out look like they've caved in. There's a bit of radio silence on this," said the investor, who declined to be named. "I wouldn't be surprised if participation on this goes over 90%."

RBS Latin America debt strategist Siobhan Morden said it's unlikely that more than 10% of the bondholders will resist the offer. With litigation costs so high, most will have to settle with the offered 30 cents per dollar and use the opportunity to exit Ecuador.

Investors can take a lesson from the travails with Argentina, which was able to beat legal action taken by creditors after the nation defaulted in 2001. "We think that ultimately it will be a very difficult battle to win in the courts despite the clear violation of due process and property rights that Ecuador has incurred," analysts at Bulltick Capital Markets said.

In December, Ecuador defaulted on some $3.2 billion in Global 2012 and 2030 bonds, contending they are "illegal" and "illegitimate."

The government has offered to repurchase the outstanding bonds via a modified Dutch auction. Bondholders had until Friday to bid or make a counteroffer on the government's terms. The final clearance price for the 2012 and 2030 bonds will not necessarily be the same and the final decision will only be made on or about May 26.

Ecuadorian officials have said the government has enough money to repurchase all 2012 and 2030 bonds at the 30-cent price tag but their capacity to pay more is "limited."

Morden said the clearance price is weighted toward the minimum, if not slightly more. "It's probably not going to be anything above 34 [cents]."

In recent trade, the 2012 bonds were down 3/16 to 30 3/4 while the 2030s were unchanged at 30 1/2.

The government has said it will continue servicing its 2015 global bonds, which were also recently unchanged at 44.

Many bondholders claim that Ecuador has secretly bought between a third and a half of the 2012s and 2030s over the past five months at beaten-down prices in the open market.

The alleged buying was done presumably with the help of anonymous third parties, though the claim has been neither confirmed nor denied by Ecuador.

A group representing 25% of the value of Global 2012s acting through their trustee, the National Bank Association, has already notified the Ecuadorian government of its move to accelerate payments. Another group is reportedly organizing around the law firm Bingham McCutchen to follow a similar course.

They are apparently calling for a "broad and coordinated opposition" to what they label Ecuador's "full-blown attack on the international sovereign credit system," said Ramiro Crespo, head of investment bank Analytica Securities.

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