Ecuador’s bonds were among the biggest gainers in emerging markets Friday after Credit Suisse Group AG agreed to buy $1.63 billion of the debt from bondholders — a step toward what could be the largest debt-for-nature transaction of its kind.
(Bloomberg) — Ecuador’s bonds were among the biggest gainers in emerging markets Friday after Credit Suisse Group AG agreed to buy $1.63 billion of the debt from bondholders — a step toward what could be the largest debt-for-nature transaction of its kind.
The notes due in 2040 gained 3.4 cents to 35.7 cents on the dollar, the highest since Feb. 15, according to indicative pricing data collected by Bloomberg. Debt due in 2030 advanced 2.6 cents to 54.8 cents on the dollar.
The Zurich-based lender, which UBS Group AG agreed to buy in March, is purchasing a slew of dollar debt due in 2030, 2035 and 2040 at a steep discount to face value, according to a regulatory filing. The savings extracted from the deal will enable Ecuador to fund certain conservation and sustainability efforts, the bank said when it announced the offer last week.
The notes still trade in deep in distress on the secondary market, allowing Credit Suisse to pay just $800 million for $1.63 billion of Ecuador’s nominal debt.
“The results of the tender indicate that the market believes Ecuador’s bonds are underpriced,” said Katrina Butt, an economist for emerging markets at AllianceBernstein in New York. “Prices today are adjusting to reflect that shift in sentiment.”
A push to oust market-friendly President Guillermo Lasso is also faltering in the National Assembly, further aiding the bonds, Butt said.
Terms of the Tender
Source: Credit Suisse
Credit Suisse has a history of participating in these so-called blue bond swaps. It acted as the sole structurer and arranger of the world’s largest debt-for-nature swap, a $364 million deal that it orchestrated in 2021 along with The Nature Conservancy, a charity, for Belize. Last year, it sealed another $150 million deal for Barbados.
Read more: Ecuador Bonds Up as Credit Suisse Hints at Debt-for-Nature Deal
As part of Ecuador’s transaction, the nation has received a guarantee from the Inter-American Development Bank backing a new debt instrument that seeks to lower the cost and refinancing risk, according to a document describing the potential transaction published on the website of the Washington-based bank.
The IDB surety will be provided along with a political risk guarantee by the US International Development Finance Corporation, or DFC, the document said.
Ecuador’s bonds are among the worst performers in emerging markets in 2023 so far, handing investors losses of 19.5%, according to data compiled from a Bloomberg index.
–With assistance from Maria Elena Vizcaino.
(Updates with market reaction throughout)
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