Belize seeks moratorium on 2034 bond interest payments

Belize seeks moratorium on 2034 bond interest payments

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

The Government of Belize asked on Wednesday for a six-month moratorium on interest payments tied to its US dollar-denominated 2034 sovereign bond, citing the COVID-19 pandemic for wreaking a "devastating" effect on its tourism-led economy.

Belize said in a statement released on the government's facebook page said "preliminary indications are that Belize's real gross domestic product will contract by as much as 18% in 2020."

"In recent years, Belize's tourism industry accounted for approximately 60% of the country's foreign exchange earnings; however tourism has collapsed due to the rapid deterioration of worldwide economic conditions and the lockdown measures imposed by many countries, including Belize, to slow the spread of COVID-19," the government's statement, issued on its facebook page said.

Belize has restructured its debt three times in the last decade, having come to an agreement with creditors the last time just over three years ago.

Moody's on May 12 cut the country's credit rating to Caa1 from B3 citing and "increased and now very high probability" that it Belize would either defer on interest payments or enter into a distressed debt exchange because of the pandemic.

The government said it would be discussing the financial situation with its creditors over the next two weeks and a formal "Consent Solicitation for temporary capitalization of interest is expected to be launched in early July."

Belize is asking creditors to forgo the interest payments, with the next being on August 20, until the February 20, 2021 payment due date.

On Wednesday, the 4.938% 2034 issue traded down 1.75 points in price to bid 40.25, putting the yield at 16.856%, according to data provider Refinitiv. The recent peak in the yield was yield 19.038%, hit on June 1. The 2034 issue has roughly $526.5 million outstanding. 

In March 2017, Belize said 87% of the holders of its then 2038 superbonds consented to a restructuring of its bond. At the time, the new terms spelled out that the interest rated accrued will be set to 4.9375% from 5%. The notes will also no longer increase to 6.7%, as was planned for August of that year. The maturity was modified to 2034 from 2038.

In its May credit rating decision, Moody's estimated that gross domestic product in 2020 could contract as much as 15%, depending on the pandemic's duration as well as the negative impact on global financial conditions. A rebound in 2021, perhaps as much as 8.1% growth, will be driven by a favorable base effect.