Ecuador Social Bond S.à r.l. Series 2020 Class B Rating Lowered And Placed On CreditWatch Negative

  • Ecuador Social Bond S.à r.l.'s series 2020 is a repack securitization backed by a social bond issued by Ecuador and partially guaranteed by the IDB.
  • We lowered our rating on the class B notes to 'CCC-' from 'B-' following the downgrade of the social bond that serves as collateral on the transaction. At the same time, we placed the rating on CreditWatch with negative implications.
  • We also affirmed our rating on the class A notes as they reflect the rating on the Inter-American Development Bank, which is unchanged.
  • The rating action on the underlying bond follows the downgrade of the rating on the Republic of Ecuador, as Ecuador's already large budgetary financing needs have been exacerbated by the recent plunge in oil prices and the negative global economic impact of the COVID-19 pandemic.
BUENOS AIRES (S&P Global Ratings) March 26, 2020--S&P Global Ratings lowered 
its rating on the class B notes from Ecuador Social Bond S.à r.l.'s series 2020
 to 'CCC-' from 'B-' and placed it on CreditWatch with negative implications, 
following a similar rating action taken on the rating on the social bond 
issued by the Republic of Ecuador. At the same time, we affirmed our 'AAA' 
rating on the class A notes (see list).

Ecuador Social Bond S.à r.l. is a repack securitization backed by a social 
bond issued by the Republic of Ecuador and partially guaranteed by the 
Inter-American Development Bank (IDB) (AAA/Stable/A-1+). Amounts received by 
the issuer from the social bond will be used to make payments on the notes. As 
such, the transaction will be a pass through of the payments of Ecuador. In 
addition, class A will benefit from payments under the IDB guarantee, as 
explained below.

The class A noteholders will be the ultimate beneficiaries of the IDB 
guarantee. Pursuant to the US$ 300 million IDB guarantee, the IDB will 
unconditionally and irrevocably guarantee the payment of scheduled interest 
and principal payment under the social bond on each scheduled payment date. 
Thus, the rating on class A is weak-linked to the rating on the IDB. In turn, 
the rating on class B reflects the rating on the social bond, which is linked 
to our sovereign credit rating on Ecuador.

Today's rating action follows the downgrade of our long- and short-term 
sovereign credit ratings on Ecuador to 'CCC-/C' from 'B-/B'. We also placed 
the ratings on CreditWatch with negative implications. The 'CCC-/C' ratings 
reflect our view that a default, distressed exchange, or redemption appears 
inevitable within the next six months. Ecuador depends on favorable business, 
financial, and economic conditions to meet its financial obligations. The 
CreditWatch negative placement reflects at least a one-in-two likelihood of a 
downgrade to 'SD' during the next few weeks if we conclude that Ecuador will 
not be able or willing to service the interest payments on its 2022, 2025, and 
2030 bonds before the grace period expires. We could also downgrade the 
sovereign if the government were to propose a debt exchange that we would 
consider a distressed debt exchange, based on our criteria. We could remove 
the ratings from CreditWatch if the government makes the payment before the 
30-day grace period expires. (Please see "Ecuador Ratings Lowered To 'CCC-/C' 
And Placed On CreditWatch Negative On Risks To Debt Service," published March 
25, 2020, for more information.)

S&P Global Ratings acknowledges a high degree of uncertainty about the rate of 
spread and peak of the coronavirus outbreak. Some government authorities 
estimate the pandemic will peak around midyear, and we are using this 
assumption in assessing the economic and credit implications. In our view, the 
measures adopted to contain COVID-19 have pushed the global economy into 
recession (see our macroeconomic and credit updates here: 
www.spglobal.com/ratings). As the situation evolves, we will update our 
assumptions and estimates accordingly.

We will continue to monitor the rating on this structured finance transaction 
and revise the rating as necessary to reflect any changes in the transactions' 
underlying credit quality.

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