Fitch Places Ecuador's 'CCC' IDR on Rating Watch Negative

2008-11-18 00:35:02 -

Fitch Ratings has placed Ecuador's long-term foreign currency Issuer Default Rating (IDR) of 'CCC' on Rating Watch Negative to reflect a reasonable probability of near term downgrades. Ecuador's IDR already incorporates the risk that default is a real possibility in the near term, particularly in light of ongoing concerns about the government's willingness to pay its obligations.
In addition, the following individual bond ratings are downgraded:
--Global 2012 & 2030 uncollateralized foreign currency bonds to 'CCC-/RR5' from 'CCC/RR4'.
Fitch has affirmed the following ratings:
--Short-term foreign currency IDR at 'C';
--Country ceiling at 'B-';
--Collateralized foreign currency Par and Discount Brady bonds at 'CCC+/RR3';
--Global 2015 at 'CCC/RR4'.
The placement on Rating Watch Negative from Stable Outlook reflects the government's decision to halt interest payments on the Global 2012 bond that was due on November 15 to asses the 'legality' of Ecuador's outstanding external debt.
The downgrade to the individual bond ratings and recovery ratings for the Global 2012 & 2030 bonds to 'CCC-/RR5' from 'CCC/RR4' reflects official statements identifying these two securities as 'illegal,' hence, increasing the probability of default relative to other market debt and potentially reducing recovery prospects for investors.
'While the oil windfall of the past two years has strengthened Ecuador's capacity to service debt, the government has always conditioned payments to political variables,' said Erich Arispe, Associate Director in Fitch's Sovereign Group. The government has repeatedly indicated that it will only service debt deemed 'legitimate,' and that it would not reduce politically important social spending to fulfill its debt obligations. 'The announcement raises further concerns about the willingness of the Correa administration to service debt under the low oil price scenario expected in 2009,' added Arispe.
Fitch will continue to monitor the government's communications with respect to its intentions to service or restructure its debt. In the event the government does not pay its missed coupon within the 30-day grace period on the Global 2012 bond or announces a distressed debt exchange (DDE), the IDR would be downgraded to indicate probable and imminent losses in NPV terms to bondholders. At the time of a payment default or the consummation of a DDE, Fitch would downgrade the long-term foreign currency IDR to either 'RD' or 'D', depending on if the default is selective or more broadly based.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww ... Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.


Fitch Ratings, New York

Erich Arispe, 212-908-9165

Theresa Paiz Fredel, 212-908-0534

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Tyrene Frederick-Mack, 212-908-0540

Email: mailto:tyrene.frederick-mack@fitchratings.com