The Government of Belize (GoB) has proposed two new repayment schedules to the holders of the “super bond”, and is now waiting for the creditors’ feedback.
Via a Ministry of Finance and Economic Development memorandum posted on the Central Bank of Belize (CBB)’s website on Thursday, GOB’s revised Indicative Restructuring Scenarios offer bondholders a choice between a 30 or 40 year maturity date.
The 40-year option (Revised Scenario A), which is closely patterned after the original Indicative Scenario A that GoB presented in early September and which had a 50-year maturity date, suggests no reduction to the principal for the US$544 million bond. It does, however, shave five years off the principal grace period, bringing it down to ten instead of 15 years.
Revised Scenario A has a mortgage-style payment structure, as opposed to the original that proposed “equal semiannual principal instalments after grace period”.
While the original Scenario A asked for a 2 percent coupon payment throughout, the revised version would pay bondholders 2.75 percent interest for the first 5 years, and 4.5 percent thereafter.
The 30-year option—patterned after the original Scenario C—keeps most things intact with its predecessor. Both propose a maturity date of 2042, a 5-year grace period, and a mortgage-styled repayment system. However, the revised and the original differ as it pertains to discount on the principal, as Revised Scenario C lowers the discount amount to 33 percent from the previous 45 percent.
The new Scenario C also deviates from the across-the-board 3.5 percent and offers bondholders 4.5 percent for the first five years, and 6.75 percent thereafter.
Noticeably, Indicative Scenario B, which asked for a 45 percent discount of the principal and a 2042 maturity date, was not modified or carried over into the new proposals.
The two Revised offers come on the heels of Coordinating Committee’s Counter-Proposals to the original proposals, which were summarily rejected by the bondholders shortly after they were released.
According to the Ministry’s memorandum, the bondholders presented “three alternative scenarios,” all of which were based on par structures, indicating that the committee did not want to discount the bond’s principal amount.
The memorandum states: “The [bondholder’s] scenarios combine, in different measure, temporary reductions in the current coupon rate with modest extensions in average life. [But] all of them involve a return to the current 8.5% coupon.”
In response, GoB said that it acknowledges that the counter-proposals provided a degree of short-term cash flow relief, but it “considers it to be wholly incompatible with its [GoB’s] objective of placing the country’s debt burden on a sustainable footing—a goal that the Committee itself has indicated it is committed to at various stages.”
GoB, after issuing the revived options, said that it will remain open to discussing alternative structures that would bring about “comparable levels of debt relief.”
This revised offer is the government’s way of signalling to bondholders that it is seeking a middle ground. Moreover, the increase reflects the government’s increased confidence the projected growth in Belize’s Gross Domestic Product (GDP), which is estimated to climb from 2 percent to 2.3 percent for this year, and to 3.3 percent for 2013.
Belize made this upward adjustment after holding its annual Article IV consultation with a mission from the International Monetary Fund at the end of October.
The renegotiation of the “superbond’ also had to take into a account the compensation that must be paid to the former owners of Belize Telemedia and Belize Electricity Limited.
The Belize Constitution mandates that the former owners be compensated within a five-year period. But the compensation demanded by the former owners was also considerably more than the evaluation done by the Government after it nationalized the utility companies.
The bondholders have since agreed with the negotiating team that the former utility owners demands were unreasonable and that their compensation should be on par with what their shares would be earning in dividends.
The compensation to which the government has agreed is an average or ‘mid-point’ between government’s valuation, as done by NERA Economic Consulting, and the evaluation of the former utility owners.
As part of the negotiation process, the Belize team also got the Committee representing the Big Four to temporarily agree in October not to sell any of their shares in the “superbond,” as this might have further depressed the quoted value of the bond, and prejudiced the negotiations.