Un-Belizeable debt restructuring [updated] | FT Alphaville

Un-Belizeable debt restructuring [updated]


It sounds almost pleasant if you ignore the gritted teeth and the fact we don’t know how much they actually paid (our emphasis):

Belize Coordinating Committee Welcomes Partial Coupon Payment and Confirms Discussions are Progressing

NEW YORK, September 20, 2012 – The Coordinating Committee of Belize Bondholders (the “Committee”) formed to address matters concerning the potential restructuring of Belize’s U.S. Dollar Bonds Due 2029 (the “Bonds”) said today that it appreciates the Government of Belize’s (the “GOB”) decision to make a partial payment of its scheduled coupon on the Bonds that was due on August 20, 2012 prior to the expiration of the grace period on Wednesday, September 19, 2012.

The Committee stated that conversations with the GOB are progressing towards a mutually agreeable restructuring of the Bonds and both sides have identified an appropriate framework to advance negotiations.

“The Government’s decision on the coupon payment was taken in consultation with the Committee and we consider it a material and good faith step in the right direction. In turn, the Committee has agreed not to seek legal remedies for a period of 60 days in order to provide additional time for the parties to conclude negotiations on the restructuring,” said AJ Mediratta, of Greylock Capital Management, LLC, Co-Chair of the Committee. “The Committee is recommending that other bondholders refrain from seeking legal remedies during this period,” added Mr. Mediratta.

The Committee has agreed to enter into a limited confidentiality agreement with the GOB in order to facilitate the negotiations on a restructuring of the Bonds. According to Mike Gerrard of BroadSpan Capital, financial advisor to the Committee, “The Committee appreciates that discussions are proceeding in a constructive manner and we are hopeful that an agreement that balances the interests of the bondholders and the GOB can be reached in the near term.”

The Committee takes note of the debt servicing challenges facing Belize and has outlined its views to the GOB as to what it considers essential elements for discussions between the GOB and bondholders. These views are consistent with the Group of 20-endorsed Principles for Stable Capital Flows and Fair Debt  Restructuring – namely transparency, open dialogue, good faith negotiations, fair treatment and appropriate burden sharing among the GOB and all creditor classes.


“We have been talking about the possibility of a partial payment,” Barrow told reporters, noting that he had been briefed on the status of talks with bondholders early on Wednesday.

Barrow downplayed the impact of what he referred to as a “technical default” and said he was optimistic about reaching a compromise.

“I’ve said that the deadline and the triggering of a technical default doesn’t have any serious practical consequences. In any event, there would be extensions that are automatically built into the process,” he said.

“But we are prepared to demonstrate some good faith if in turn we get from the bondholders what we consider to be reciprocity.”


That’s the small Central American country of Belize, playing hardball with the holders of its $544m ‘superbond’ on Thursday. The government was all set to default on this bond – itself the product of an earlier debt restructuring – after missing a $23m interest payment in August. An initial offer to bondholders was met with cries of “you lot are worse than Argentina.”

It’s an interesting example of a sovereign debt restructuring which has turned pretty grumpy — interesting, and delicate, because holders of sovereign debt generally lack most normal forms of recourse in the event of default. It’s why restructuring practice makes a big thing of fairness, equality of treatment and other rules of the game. And also making this interesting –Belize’s superbond features a collective action clause. The CAC requires 75 per cent of the bond’s holders to vote in favour, in order to bind holdouts to a debt exchange.

In the meantime there’s the superbond’s looming technical default. As Nomura’s Boris Segura says, in such a case of non-payment, not less than 25 per cent of bondholders may declare the principal amount of all the bonds due and payable immediately. That’s known as “acceleration” and has yet to actually happen.

Thing is though, the central American country can afford to play hardball. From Dealbook last month (emphasis ours):

The bondholders have no direct way of making Belize pay, but they can make life difficult for Belize in the future, trying to snatch funds that flow through New York and causing no end ofpolitical hassles for the country.

Moreover, as a relatively small borrower, Belize probably has to worry more about long-term access to the financial markets than a country like Argentina or even Greece. The threat to shut a country like Belize out of the market is far more credible.

However, any recovery the bondholders can get through a restructuring deal is probably going to be the vast bulk of the total recovery. As such, the bondholders can’t bargain so hard that Belize just says “forget it.”

Finally, and optimistically, from Segura again:

We suspect that the “extended grace period” in return for a “partial payment” on this coupon means that the Superbond will not be accelerated while negotiations continue. However, we think that the government and bondholders are still far apart in terms of what public sector debt sustainability means for Belize.

On the one hand, the Belizean authorities would show good faith in this negotiating process and also some willingness to pay. On the other hand, this would mean that the bondholders committee effectively encompasses a majority of bond holdings, which we think bodes well for recovery value under this restructuring exercise.

The enormously illiquid bonds are still trading near 36c on the dollar, roughly the same level hit at the end of August, having dropped from an already depressed 50c in July (click to enlarge):

Related links:
Concern rises over Belize debt – FT
Belize nears defaulting on bond payment – FT