Fitch: Potential restructuring of Ecuador debt raises concerns

Fitch Ratings said that statements about potential debt restructuring by Rafael Correa, the apparent victor in Ecuador's presidential election, raise credit concerns for the country, which has a B- long-term foreign-currency issuer default rating and a negative outlook.

"Campaign promises to renegotiate debt by fiat or to impose a moratorium must be taken seriously," Morgan C. Harting, Fitch's lead sovereign analyst for Ecuador, said in an agency rating.

"Our assessment of sovereign creditworthiness considers both ability to pay and willingness. Given Ecuador's poor debt service track record, willingness is a risk we have highlighted consistently. Until now, however, authorities have insisted on their commitment to honor obligations. Correa's statements mark a break from current policy. And his notion of a pre-emptive restructuring harmful to bond investors in the absence of financial duress would be unprecedented."

If a moratorium is announced or an exchange offer is made that would be harmful to bondholders, Fitch said the ratings could be downgraded.

Alternatively, in the event that the incoming president demonstrates his intention to continue bond debt service according to original terms and that any potential exchange would be completely voluntary, the agency said it could remove the negative outlook in light of the improved fiscal position.

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