Headline — 17 August 2012 — by Adele Ramos
GOB heading for super-bond default?

Committee for bondholders rejects GOB’s restructuring scenarios

Ministry of Finance says it can’t meet Aug. 20 payment of US$23 million

Internationally, the reaction to the proposed restructuring scenarios for the Belize’s US$544 million step-up bonds due in 2029 has been negative, and only yesterday, a group of the bondholders, who are being advised by BroadSpan Capital LLC, issued a statement frowning upon them. On the heels of that statement, the Ministry of Finance today issued a press release signaling that it is unable to make the next installment of the super-bond payment, US$23 million, due next Monday, August 20, 2012.

“We simply cannot afford this coupon payment given the financing shortfalls and other challenges we face. Our hope, however, is that we can move quickly toward a sensible restructuring of the instrument,” said the release.

In a statement issued Monday, August 13, by the Coordinating Committee of Bondholders, formed to address matters relating to the potential restructuring of Belize’s U.S. dollar bonds due 2029, the group announced its “disappointment and concern” over the Government of Belize’s recently published indicative restructuring scenarios, which propose a substantial haircut off the principal payments of nearly half.

The committee said, “While initially encouraged by the Government’s stated commitment to a ‘fair and transparent dialog,’ the Coordinating Committee is having difficulty reconciling the scenarios and the financial information released by the Government on June 20.”

The three restructuring scenarios are as follows: Scenario “A” proposes a 50-year bond, from 2012 to 2062, whereas scenarios “B” and “C” propose 30-year arrangements with contrasting features and both having final maturity dates of 2042.

Furthermore, Scenario “A” calls for a fixed 2% interest rate but no reduction in the principal payment and semi-annual principal payments kicking in after a 15-year grace period. Scenario “B” calls for a tiered interest scheme ranging from 1% to 4%, but a 45% discount on principal and no grace period. This would allow bondholders to get more of their money upfront, while scenario “C” includes a 5-year grace period for the repayment of interest with a fixed interest rate of 3.5%.

The existing super-bond structure calls for principal repayments between 2019 and 2029, but the interest rate has climbed from 4% in 2007 to 6%, and it is now reaching its maximum of 8.5% for the August payment.

In his budget speech made last month, July, Prime Minister and Minister of Finance Dean Barrow had said that, “Even though we are budgeting the interest payable under the current terms of the super-bond, some BZ$93m, Government expects, and is determined to obtain, a reduction of this amount as a result of the debt restructuring operation.”

Barrow had also said that the Government is unable to meet all its commercial obligations under the current super-bond terms as well as meet its social obligations to its citizens.

He added that, “…the step-up interest rate on the super-bond, now at a harrowing 8.5%, demands some BZ$93 million per year. This is in excess of 3% of GDP at a time when international interest rates are at historically low levels. The imperative for restructuring is therefore irresistible.”

For its part, the committee for the bondholders affirmed in its statement Monday that: “We previously communicated from the beginning that we are sympathetic to the challenges facing Belize and are prepared to work with the authorities in a consensual and collaborative manner. However, we do not consider the indicative scenarios released last week as the start of negotiations.”

According to the Committee, it has outlined its preliminary views for the Government detailing what it considers to be essential elements for discussions between the Government, creditors and the Coordinating Committee.

“These views are consistent with the Group of 20-endorsed Institute of International Finance’s Principles for Stable Capital Flows and Fair Debt Restructuring, namely transparency, open dialogue, good faith negotiations, fair treatment and nondiscrimination among creditors,” it added.

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