Belize creditors organize committee to address payment moratorium request

Belize creditors organize committee to address payment moratorium request

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

Investors holding Belize's sovereign US dollar-denominated 2034 bonds said in a statement late Thursday they formed a creditor committee to address the government's request for a six-month interest payment deferral due to the economic strain of the COVID-19 pandemic.

Acknowledging the impact of the pandemic on its tourism-led economy, the committee said that it looks forward to discussing the situation and the economic pressures that are constraining its capacity to "service full coupon payments in the near term."

"At the same time, the Committee recognizes that Belize needs to undertake economic policy adjustment and to address the country’s other debt obligations in a manner that would contribute to a durable solution for its liquidity challenges," the statement said.

The steering committee for the creditors consists of Boston-based Grantham, Mayo, van Otterloo & Co., LLC and New York-based Greylock Capital Management LLC.

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

"The Committee notes that the Bonds were subject to a restructuring completed by Belize in March 2017, which was itself preceded by a restructuring completed in March 2013, and that both transactions have provided the country with over US$200 million in debt service relief to date," the creditors said in their statement.

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

"The Committee acknowledges and appreciates the initial commitment expressed by Belize to consult with creditors on the aforementioned issues in a fair and constructive manner, and believes that interactions between the Committee and Belize should be conducted in a manner consistent with the Group of 20-endorsed Principles for Stable Capital Flows and Fair Debt Restructuring, which include transparency, open dialogue, good faith negotiations, fair treatment among creditor classes, and a genuine budgetary and fiscal policy framework, among others," the committee statement said.

On Thursday, the 4.938% 2034 issue had a bid price of 42, up from Wednesday's quote of 40.25, putting the yield at 16.215%, 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. 

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.

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.

Legal counsel for the committee is Orrick, Herrington & Sutcliffe.