In order to include Distressed Sovereign Restructured Debt as an asset sub-class within ActiveAllocator we examined the past 30 sovereign default crisis with 270 bonds in multiple emerging markets including Argentine, Bulgaria, Colombia, Ecuador, Iraq, Mexico, Nigeria, Panama, Peru, Philippines, South Africa, Turkey, Ukraine, Venezuela etc. Given the large variation of returns between crisis episodes, aggregating statistics from these events is a spurious exercise; the sample size is much too small, restructurings idiosyncratic, haircuts and losses vary widely as well as heterogeneous debt security-level characteristics.
Our approach is to parse the anatomy of each restructured deal – restructuring defined as a distressed debt exchange in which creditors receive instruments with less-favorable terms than the original issues -beginning with an examination of the original debt offer documents as well as the specifics of each deal.
Wall Street Journal, July 18, 2020 “ Funds Clash Over Deal on Ecuador “
To swap $18 billion bonds into new that pay lower interest with delayed maturity. Restructuring debt proposals create creditor – including Ashmore Group, BlackRock, T. Rowe Price, Contrarian Capital – differences in how different bonds are to be treated. New transactions being asked to linked to ESG goals.
- Ecuador seeking to restructure debt during coronacrisis, and lower oil prices given new liquidity and debt sustainability challenges
- Oil dependent economy heavily reliant on external credit where external interest payments are 10% of current external receipts
- For history of Ecuador Debt Restructuring we recommend: Feibelman, A. (2017). Ecuador’s 2008–2009 Debt Restructuring. In J. Bohoslavsky & K. Raffer (Eds.), Sovereign Debt Crises: What Have We Learned? (pp. 48-64). Cambridge: Cambridge University Press. doi:10.1017/9781108227001.004
- We examine here the anatomy of Ecuador Debt Exchange Transactions — 2000 , the first instance of default in Brady Bonds