Headline — 21 January 2017 — by Adele Ramos
Bondholders say no to Belize!

BELIZE CITY, Tues. Jan. 17, 2017–In a statement issued today, bondholders announced that they have rejected the offer released by the Government of Belize last week to holders of its 2038 billion-dollar bond, in which the Government proposed a reduction in interest rates and a delay in amortization payments due to economic exigencies.

The committee has also indicated that it is not convinced that the partial fiscal adjustment measures announced by the Government of Belize will avert future problems and reduce the risk of yet another debt restructuring exercise down the road.

The bondholder committee is composed of Greylock Capital Management, LLC; Grantham, Mayo, van Otterloo & Co. LLC; Steadfast Insurance Company and Capital Markets Financial Services Inc. The committee has additionally retained BroadSpan Capital LLC as financial advisor, Blitzer Consulting as special advisor, and Arnold & Porter Kaye Scholer LLP as legal advisor.

The statement issued by a committee representing bondholders said that, “…its members have reviewed and decided to decline the consent solicitation (the ‘consent solicitation’) launched by the Government of Belize (the ‘GOB’) on January 12, 2017.”

It added that, “If approved, the proposed amendments to the terms and conditions of the bonds contemplated by the consent solicitation would crystalize a further reduction in the net present value of the bonds in excess of 40%, in addition to a cumulative reduction of more than 50% already provided by bondholders in restructurings of predecessor instruments to the bonds in 2007 and 2013.”

The committee representing bondholders says that Belize’s consent solicitation—which requires valid consent to be provided by holders of at least 75% of the bonds—is premature, and no consent will be granted at this time, it added.

The next payment on the super bond is due in just about a month. Despite the impasse, the Government of Belize is hoping that a deal can be struck with bondholders by then.

The Government of Belize had sought “the consent of holders of the bonds to amend this amortization schedule with the effect that the 2038 bonds will amortize in three equal, annual installments on February 20th of 2036, 2037 and 2038.” As the arrangement currently stands, the 2038 bonds amortize in 38 equal, semi-annual installments commencing on August 20, 2019 and ending on February 20, 2038.

The Government also sought “the consent of holders to fix the interest rate at 4% per annum commencing February 20, 2017 through the final maturity of the 2038 bonds.”
The current interest rate of 5% steps up to 6.767% per annum when the August 20, 2017, payment is due.

The Government’s offer also proposed to pay bondholders a consent fee of 0.25% of the face amount of the 2038 bonds if the amendments become effective.

The committee contends that “…any potential debt relief must be part of a medium-term solution for Belize, requiring as well (i) a strong and credible medium-term program of fiscal and structural adjustment to promote economic growth and reduce crisis risk, and (ii) reasonable mechanisms to assure that the adjustment program will be delivered.”

It added that, “While the GOB has made public a partial outline of a proposed economic adjustment program, it has not yet provided the details required to fully evaluate the program and its sustainability. However, based on the publicly available information, the Committee’s preliminary conclusion is that the proposed adjustment program is unlikely to reduce future risks to debt sustainability or to the stability of the country’s currency peg in a sufficient manner.”

It urged the Government of Belize “to seek technical assistance in further developing a comprehensive home-grown adjustment program that can ultimately be endorsed by Belize’s multilateral partners.”

In a memorandum to a trustee of bondholders earlier this month (specifically addressed to the Bank of New York Mellon), the Government of Belize, via Financial Secretary Joseph Waight, said that in the face of these unusual macroeconomic, fiscal and public debt exigencies, the Government of Belize has undertaken an aggressive program of fiscal consolidation and collaboration with its social partners with a view to achieving economic recovery and fiscal and public debt sustainability.

Waight said that in this fiscal year, tax increases of 1.5% of GDP (hikes which came in the form of higher fuel taxes) have been enacted with a further 3% of GDP in adjustments planned for FY 2017/18.

He did not elaborate on how the tax revenue would be increased.

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