Barbados creditors gear up for likely debt restructuring

Barbados creditors gear up for likely debt restructuring

Bonds Capital Markets Debt Barbados

Barbados' creditors are gearing up for debt restructuring talks as the government advances discussions with the IMF over a potential financing package.

Newly-elected Prime Minister Mia Mottley and her administration, along with financial advisors White Oak, are expected to continue meetings with domestic creditors and their advisors over the next few weeks, a source familiar with the proceedings has said.

"Creditors have shown an understanding for the Government's resolve to place the public finances on a sustainable footing, but a lot hinges on whether the Caribbean island can secure funding from the IMF," the source said on Thursday.

An agreement-in-principal with the multilateral agency could surface as soon as this August ahead of a signed pact in September.

Barbados' external creditors could face up to a 50% nominal haircut in the event of a restructuring, according to Stuart Culverhouse, head of research at Exotix. He said in an emailed note that there were similar 50% cuts in other Caribbean islands such as Grenada and St. Kitts and Nevis.

He also expects the restructuring to focus on cash flow because external commercial debt was only 10% of public debt and 17% of GDP.

Barbados' bonds were hovering around 55 cents on the dollar on Thursday afternoon, according to a second buyside source.

Given the majority of Bajan bond debt is held by domestic and regional creditors, the second source said external bondholders may argue that the domestic side should be most impacted by a haircut.

"External debt is a small part of their total," he said. "But on the domestic side, I doubt you'll see a haircut."

On June 1, Barbados said it would suspend all external debt payments and try roll over domestic liabilities. The sovereign has since missed about $12m in payments across its 6.625% 2035s on June 5 and a June 15 payment on its 7.25% 21s. The next coupon payment is August 4 on the island's 7% 2022 securities.

Barbados has $150m outstanding in 21s, $200m in 2022s and $195m in 2035s. These bonds have fallen from the low 90 cent range.

In May, Mottley's center-left Barbados Labor Party (BLP) won all 30 seats in the government's House of Assembly. 

Since 2010, St. Kitts and Nevis, Antigua and Barbuda, Grenada and Jamaica have had to default and restructure debt.

Barbados has not tapped international bond markets since 2013.