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Chronicle of a debt foretold

A small Andean nation proves that it is possible to successfully restructure a bond issue. And to a great extent, the success of the Ecuador exchange offer was a self-fulfilling prophecy.

Nazareth Festekjian

To a great extent, the success of the Ecuador exchange offer was a self-fulfilling prophecy.

As news of a forthcoming offer started circulating, Ecuadorean bonds began to rise in value. When the offer was released on July 27 2000, they skyrocketed, pricing in a successful exchange. Bondholders, nearly all of whom mark to market, were given the most obvious evidence possible that the new bonds were worth substantially more than the old ones: the benchmark PDI bond rose 53% from July 17 to July 28, and 31% on the day of the offer alone.

None of that would have happened had details of the offer been known in advance: the whole thing required that the market be surprised by the generosity of the terms. "To the credit of the Ecuadoreans, it did not leak," says Nazareth Festekjian, a managing director at Salomon Smith Barney responsible for structuring the deal.

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