Grenada makes bond payment - creditor

Grenada makes bond payment - creditor

Bonds Debt Capital Markets Corporate & Sovereign Strategy Economy & Policy Fixed Income Funds Central America Coronavirus Grenada

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Grenada has made a semi-annual debt payment to private creditors that was due on May 12, putting aside for now its request for a moratorium on bond payments because of the coronavirus pandemic, one source who holds the debt told LatinFinance.

The payment also put aside a potentially bigger issue, that of private creditors either following or rejecting the official sector's call to suspend debt service payments until December 31. The Group of 20 (G20) major economies' decided in April to ask official creditors to do this for International Development Association (IDA) nations. Grenada is designated as an IDA nation.

Grenada’s tourism-led economy has been hit particularly hard by the COVID-19 pathogen that has shattered the global economy and caused a massive slump in global travel. It asked in a letter dated May 4 to the bondholders trustee bank, The Bank of New York Mellon, that creditors grant the moratorium following the G20's decision.

"Yes. Just confirmed from Euroclear and our custodian State Street that the payment has been received," said the bondholder, referring to the payment.

In an exclusive report on May 11 by LatinFinance, a letter by Keith Mitchell, who serves as both Prime Minister and Minister for Finance, asked that the payments of principal and interest totaling $15.4 million over the this eight-month period, be suspended. 

The bond in question, issued in 2017 for about $100 million, matures in May 2030 and carries a 7% coupon. Amortization payments, including the one this week, have reduced the outstanding principal to $89.83 million, according to data provider Refinitiv. The estimated total payment made this week was $4.49 million in principal and $3.22 million in interest. The next payment is due November 12. 

While the sums of money are not considered particularly large within the context of the international capital markets, the possibility of private creditors accepting the moratorium on the G20 guidelines could have set a new precedent with wide ranging impact as many nations face crushing financial strains due to the pandemic. If private bondholders are not paid, the covenants governing these debt agreements would likely be interpreted as events of default, spurring the need for formal debt restructuring talks.

Messages left with Mitchell's officer requesting comment were not returned. Aside from one discussion between Grenada and private creditors on Friday May 8th, there were no other talks, the bondholder told LatinFinance.

The International Monetary Fund (IMF) forecasts Grenada's GDP in 2020, at constant prices, will contract 8% and then grow by 6.1% in 2021. The current account balance, as a percentage of GDP, is set to contract 27.7% this year and only improved to a negative 18% in 2021.

Grenada was listed by the IMF as being in debt distress on April 30th. At the time that list was made public, the nation's debt situation had just been discussed two days prior by the IMF's Executive Board, but the details were not yet published.

Grenada went through two debt restructurings in the last 16 years, first in 2004-2006 after Hurricane Ivan and a second from 2013-2015.

In 2015, Grenada restructured $262 million in defaulted debt from 2013 with bondholders agreeing to a 50% haircut on the original value.