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Ecuador Brady bond holders seek cash collateral

By Hugh Bronstein

NEW YORK, April 25 (Reuters) - A group of investors frustrated with the slow pace of Ecuador's debt restructuring talks is moving to collect about $200 million in cash collateral connected to the country's defaulted Brady bonds.

``The initial thought among creditors was that Ecuador was going to present us with a market-friendly resolution, so we should just leave the claim intact. But at this point I have no sense that there will be a quick resolution,'' said Robert Koenigsberger, managing director of money management firm Gramercy Advisors.

Ecuador's Brady bond deal, negotiated in 1994, called for the government to put up about $98 million to collateralize the interest on its $1.4 billion in Discount bonds and about $95 million to collateralize the interest on its $1.9 billion in Par bonds, Koenigsberger said.

U.S. Treasury strips collateralized the principal for the Brady bonds, which were issued to Latin American nations that defaulted on bank debt.

The collateral related to Ecuador's past-due interest coupons is being held at the New York Federal Reserve. Chase Manhattan Bank, as Ecuador's agent, is required to distribute the money in the event of a default and if requested by a minimum of 25 percent of the bond holders, Koenigsberger said.

``We're inclined to go this route because it's been more than six months since the default and nothing has occurred (on the renegotiation front),'' Koenigsberger said.

Koenigsberger said he believes the required 25 percent of bond holders will request the collateral be released.

Gramercy is the New York firm that spearheaded investor efforts to negotiate a bond restructuring with Russia, which was reached early this year, and now with Ecuador. Gramercy is a director of the Ecuador Creditors Advisory Group (ECAG), which is supporting the move to collect the collateral.

``This reflects the market's expectation that Ecuador's debt renegotiations will be a long drawn out process,'' said Mike Conelius, manager of the T. Rowe Price Emerging Markets Fund.

Conelius said he has some exposure to Ecuador bonds but has not joined the effort to recoup collateral.

Ecuador has said it aims to reschedule its over $6.0 billion bond debt no later than July. The country's total public foreign debt of $13.65 billion amounts to 90 percent of its gross domestic product (GDP).

Last October, the government ceased paying principal and part of the interest on Brady bonds, becoming the first country to declare a moratorium on those securities, which were designed by former U.S. Treasury Secretary Nicholas Brady to resolve Latin America's 1980s debt crisis.

One Wall Street emerging debt analyst, who spoke on condition of anonymity, said the move to collect collateral indicates a tough stance on debt renegotiations expected to begin next month.

``For them to do it now, the week after Ecuador's IMF programme was signed and a month before we think Paris club debt negotiations are going to start, would indicate that the bond holders are not confident that they're going to get a fair shake in the negotiations,'' the analyst said.

A $304 million International Monetary Fund credit line approved last week opened the door for a $2 billion international package to rescue the impoverished Latin American nation of 12.4 million people. But the money will be released only if Ecuador reaches a set of economic goals that analysts agree will be quite challenging.

In an effort to stabilise the economy, Ecuador's Congress passed a law in March to gradually adopt the dollar as the currency of this Andean nation where unemployment runs at 18 percent. The dollar will replace the beleaguered sucre, which lost two-thirds of its value in 1999.