S&P cuts Belize as country looks to restructure $530m in bonds

Belize Bonds Funds

S&P Global Ratings has cut Belize’s sovereign credit rating deeper into junk territory as the Central American country looks to restructure its debt for the second time in five years.

The ratings agency lowered the rating to CCC+ from B- with a negative outlook.

Last week, Belize Prime Minister Dean Barrow traveled to New York to meet its financial advisors and holders of the country’s 2038 bonds after the government said it is confronting "serious economic and financial challenges." 

Ahead of the meeting, the government urged bondholders to form a committee before the end of November, or roughly two months before the country faces its next coupon payment. A government spokesman did not immediately respond to a request for comment.

One source familiar with what was discussed at some of the meetings said Barrow wants to reopen and extend the bonds, the country’s only securities in the international credit markets. Belize is looking to restructure $530 in bonds. 

In cutting Belize’s rating, S&P cited "impaired fiscal and external imbalances, limited external funding, reduced foreign exchange reserves and the loss of correspondent banking relationships." The rating agency said the negative outlook stems from the "potential further deterioration in the government’s ability or willingness to service its debt, given the risk of continued worsening in liquidity for the sovereign and for the economy as a whole."

Economic growth in Belize slowed to 1% last year, according to the International Monetary Fund (IMF). Belize’s GDP is forecast to contract this year, and the economy is still reeling from the impact of Hurricane Earl, which struck the country in August. Adding to Belize’s woes is a widening fiscal deficit, which hit 7.7% of GDP in March, S&P said. The rating agency added that it expects government debt to rise to 81% of GDP this year, up from 76% in 2015.

Sean Newman, a senior fixed income portfolio manager at Invesco, said bondholders should take a tough stance in any negotiations.

"Bondholders should come together to aggressively demand that the terms be met," he said. "A hardline stance should be taken. Before the current government came to power, the country was actually operating with a minor fiscal deficit. What the prime minister has done since coming into office is ramp up spending."

Another investor who asked not to be named said some bondholders "at this point in time are looking for haircuts."

S&P said Belize’s economy has also been hurt by the loss of correspondent banking relationships. Only two out of the country’s five domestic banks have managed to maintain correspondent banking relationships with full banking services. Belize’s central bank has also lost three of its five correspondent bank relationships over the last two years, S&P said.

"The loss of these financial links could significantly impair activity in key sectors of the economy, including tourism and trade and counteract efforts to reduce fiscal deficits," S&P said.

The government has said it has retained Citigroup as its structuring advisor and Cleary Gottlieb as its legal counsel.

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