Costly Goldman Lifeline Forces Ecuador to Scrap Bank Loans Early

Ecuador repaid loans early from Wall Street firms including Goldman Sachs Group Inc. and Credit Suisse Group AG after a selloff in the nation’s bonds triggered extra payments to the banks.

The Finance Ministry closed out the deals totaling about $1 billion last month, according to an internal report seen by Bloomberg. The four-year loans, dating from 2018, seemed like a cost-saving move as the two banks offered cheaper terms than the distressed rates found in the bond market.

To secure the deals, President Lenin Moreno’s government had to pony up notes worth almost $2.5 billion as collateral with potential payouts if there was a big drop in the bonds. Sure enough, a selloff in February amid weaker oil prices prompted a roughly $260 million payout. An even steeper decline in March, as the coronavirus pandemic worsened, triggered another exceeding $500 million. The payments ate up critical cash as Ecuador struggled with one of the region’s worst outbreaks of Covid-19 and was forced to delay debt payments.

“The government appears to have gotten itself out of the main mess it put itself in, albeit at a major cost,” said Andres Arauz, the former director general of Ecuador’s central bank under Moreno’s predecessor Rafael Correa. “The fact that select creditors received the full value of their investment while bondholders deferred their coupons and domestic arrears grew will make it harder for this government to negotiate a credible agreement.”

Spokespeople at Goldman and Credit Suisse declined to comment on the deals, as did officials at the nation’s Finance Ministry.

Moreno’s administration reached an accord with bondholders last month to delay interest payments until mid-August, giving it time to secure new financing from the International Monetary Fund before resuming negotiations.

“It’s one less thing to worry about,” said Siobhan Morden, head of Latin American fixed income strategy at Amherst Pierpont Securities in New York. “There are $18 billion in Eurobonds. That’s the main focus.”

Source: Bloomberg

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