The Government of Belize (GOB) has proposed three debt-restructuring scenarios for the so-called “super bond” and the first option, Scenario A, if accepted by bondholders, could very well push back the bond’s maturity date to 2062 from 2029 – a difference of 33 years.
Scenario A also includes a 15-year “principal grace period.” Under the original arrangement for the bond, GOB was to start making principal instalments in the year 2019. However, if accepted, it would mean principal payments would begin in 2028. Principal installments, however, would still be made in equal semiannual payments after the grace period.
The first option does not alter the principal amount for the US$547 million bond; but it does reduce the coupon (interest) rate from 8.5 percent to a standard 2 percent for the life of the bond.
This means that GOB would be paying almost BZ$11 million instead of BZ$46 million per coupon payment, which are made twice a year.
Scenario B and C
Scenarios B and C, unlike the first option, propose a sharp 45 percent principal reduction, which would reduce the principal amount from US$547 million to less than US$250 million.
Both options also propose the same maturity date—the year 2042. However, the proposals differ in repayment styles, grace periods and coupon percent rates.
Scenario B carries the conventional equal semi-annual principal installments, but Scenario C suggests a mortgage-style repayment schedule that has “level principal and interest”. The third option also asks for a 5-year “principal grace period.”
Another differentiating feature is found in the plans’ coupon payments. Scenario C offers an invariable 3.5 percent; but the third option presents an incremental option: a coupon rate of one percent up to 2019, two percent through to 2026 and 4 percent up to 2042.
According to the Indicative Restructuring Scenarios document, which was posted on the Central Bank of Belize’s website, the proposed scenarios—which are the results of the recent consultations initiated by the government-appointed External Debt Review Team led by Ambassador Mark Espat – are designed to try and “close the financing gaps facing the country in a sustainable manner.”
The need for
According to the Central Bank of Belize’s Economic and Financial Update for June 2012, the “US Dollar bond … is the single largest debt instrument within the recorded public debt stock, accounting for 46% of the overall recorded public debt and 99% of the external commercial category.”
The report’s overview also named Belize’s increasing debt service obligations, which include the bond payments and compensation to the former owners of Belize Telemedia Limited and Belize Electricity Limited, and a forecasted decline in oil revenue as the factors that are straining public finances.
“Belize is now moving to address its additional liabilities and determine strategies for dealing with the forecast collapse in oil revenue,” the report stated.
“This notwithstanding, overall obligations look certain to exceed the country’s capacity to pay, even when conservative assumptions are used.”
The financial update went on to say that the authorities are in discussions with multilateral partners as well; however, “it is clear that multilateral funds alone will not close these expected shortfalls.”
These are among the principal reasons that Prime Minister Dean Barrow has declared the bond restructuring as unavoidable, despite the negative feedback from rating agencies and the expected reluctance of bondholders to accept the new terms.