Ecuador Debt Swaps Set to Pay $60 Million After Coupon Delay

(Bloomberg) -- Investors holding debt protection for Ecuador are in line to share compensation of about $60 million after the South American nation struck a deal with creditors to suspend coupon payments on its foreign debt.

Firms holding the country’s credit-default swaps will receive about 65% of the amount covered by the instruments, according to the final results of an auction to settle the contracts on Tuesday. They get triggered when a borrower fails to pay its debt. Investors use the instruments to make negative bets on borrowers or as hedges for bond investments.

Ecuador, which went 180 years without repaying a bond, has struck a market-friendly tone under President Lenin Moreno and his Finance Minister Richard Martinez, though it’s now grappling with both a public health crisis and a downturn in crude oil prices. The nation has been one of Latin America’s hotspots for the Covid-19 pandemic.

Last month, the government reached a deal with bondholders to delay interest payments on about $18 billion of foreign debt until August. While the nation’s benchmark bonds due in 2028 have rebounded to 35 cents on the dollar, that agreement triggered the credit-default swaps. That makes Ecuador the second prominent emerging-market this year, following Lebanon, to activate payments on its CDS.

Some of Ecuador’s largest creditors include Ashmore Group Plc, BlackRock Inc. and Goldman Sachs Group Inc., according to data compiled by Bloomberg.

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