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Exit consents pose threat to creditors’ rights

The Emerging Market Creditors Association is becoming nervous because Ecuador included exit constraints in its exchange offer. Now they have been used successfully once, they may be used again elsewhere.

Michael Chamberlin

If bondholders' unhappiness at the way they were treated in Pakistan, Ecuador and Ukraine boils down to the fact that they perceive that creditors' rights were not respected, then the most egregious example of those rights being demolished came in the case of Ecuador, with the inclusion of exit consents in the exchange offer. Now that they have been used successfully once, there is a presumption among a lot of market participants that they will be used again. That makes the Emerging Market Creditors Association (EMCA), and others, extremely nervous.

Ecuador's offer was richer than the market had expected - that was the carrot. But exit consents comprised a big stick. Every bondholder who tendered into the exchange was required to vote in favour of a long list of amendments to provisions in the original bond documentation, all of which made holding the original bond much less attractive.

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