Buying Time

Mar 1, 2007

Belize's creditor-friendly restructuring bought it crucial debt service relief. But the workout did little to diminish a staggeringly high debt burden.

Belize took a preemptive and transparent approach to restructuring its $550 million external commercial debt, setting a good example for other debtors. The sovereign workout was also the first in more than 70 years to invoke Collective Action Clauses (CACs) governed by New York law, now the standard in Latin bond issues. "Belize's innovations prove that CACs can play an important role in sovereign debt workouts," says Sebastian Espinosa, director in the sovereign advisory practice of Houlihan Lokey, the sovereign's financial adviser. Belize has $1.1 billion in public sector debt, including bilateral and multilateral obligations not included in the deal, which closed in February.

The CAC, which specified an 85% supermajority needed to adjust payment terms, was embedded in a $100 million 9.75% of 2015 bond. Belize was the first Central American nation to use CACs and the deal was issued in 2003, not long after they started...

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