No deal on debt restructuring

As a year-long stalemate drags on, the Barbados External Creditor Committee has flatly rejected Government’s latest debt restructuring offer as talks between the two sides sour. In the latest developments, the committee has noted that it is having difficulty taking the administration’s commitment to finding a resolution “seriously”.

In a release dated June 14, the committee said it was disappointed that the Mia Mottley Government had released restructuring scenarios that “ignored important feedback” in respect of financial and structural terms put forward during negotiations between the committee and the authorities over the past several months.

In its June 11 creditor update, Government issued its latest proposal, saying it was done from “the point of view of bondholders”, while respecting the debt targets as agreed with the International Monetary Fund (IMF) under the Extended Fund Facility (EFF)-supported programme.

Government said the negotiation with US-dollar debt holders was aimed at helping to place the country’s debt, which stood at about 125 per cent of gross domestic product at the end of December, on a sustainable footing, in line with the four-year IMF-backed EFF programme.

Government said it was guided by its aim for a 60 per cent of debt to GDP target by financial year 2033/2034, and an intermediate target of 80 per cent by 2027/2028, which is a key anchor of the IMF-funded programme.

In its latest offer, Government said the “combined proposal” assumes that Barbados will offer holders of its 7.25 per cent Notes due 2021, a 0.25 per cent cut and repayments in 2022 instead.

The proposal also suggests that holders of the 6.625 per cent Notes due in 2035, which are collectively considered the “Eurobonds”, and the Credit Suisse 2018 and 2019 loans options, would exchange their existing instruments either into new “Amortising Step up Notes” due 2033 and “issued at a discount”, or for new 3.25 per cent Amortising Notes due 2044, issued at par.

Offer one would see them getting a new 14-year bond issued at 66.67 per cent of the face value, with 24 equal repayments twice yearly, denominated in US dollars. There would be a two-year grace period on principal and a natural disaster clause would be attached.

This option would see external creditors getting coupon at a fixed rate of 3.5 per cent for years one and two, and then a fixed 7.5 per cent per annum for years three to fourteen.

Scenario two, would see US dollar bond holders getting a 25-year bond with 29 equal repayments twice yearly. This scenario, which also carries with it a natural disaster clause, comes with a 15-year grace period on principal and creditors would get coupon at a 3.25 per cent per annum fixed rate throughout.

In scenario one, past due interest (PDI) and accrued interest would be 100 per cent capitalised while in scenario two the PDI and accrued interest would be 100 per cent written off.

Government said once the final consultative phase was concluded, it intended to launch a formal exchange offer open to holders of its Eurobonds and Credit Suisse 2018 and 2019 loans, adding that affected holders of those instruments would have approximately three weeks to consider and respond to the offer.

It is anticipated that holders of other unsecured US-dollar denominated instruments would receive separate but comparative offers around the same time.

However, in unanimously rejecting the offer, the committee said it “will not support or recommend any unilateral exchange offer contained in the released scenarios”.

The committee said it found it “difficult” to take Barbados’ commitment to achieve a resolution to its “long-standing external commercial default in a consensual manner” seriously.

The committee further stated that it regrets Barbados’ decision to ignore the revised proposal that it presented “in good faith” on May 17, 2019.

The London-based White Oak Advisory, which is representing the Government in negotiations, had said last month that the creditors’ offer failed to meet “the IMF debt sustainability by quite some margin”.

Barbados TODAY was unable to confirm what exactly the committee’s proposal was. But the committee said its last financial proposal was designed to meet Government’s objectives regarding debt to GDP, but by one year later than expected.

It said its offer would at the same time provide greater cash flow relief than the scenarios put forward by Barbados in the short- to medium- term to further support the reform efforts.

“Importantly, the committee’s proposal also creates a liquid and marketable security that would enhance Barbados’ ability to re-access the international capital markets over time, an important tool for the country to continue to build and stabilize foreign exchange reserves,” it added.

Nevertheless, the Committee urged Government to re-engage in good faith negotiations over the coming weeks to secure a resolution to the benefit of all stakeholders.

While questioning Government’s debt restructuring move, the committee pointed out that while domestic bond holders were subjected to local regime designed to “force the implementation” of that restructuring, it was an avenue that “cannot be used in respect of the New York and UK law instruments represented by the committee”.

“The committee would welcome the opportunity to continue good faith discussions with the authorities over the coming weeks, with the objective of reaching a consensual resolution for the benefit of all parties. The committee notes, however, that any potential launch of a unilateral offer by Barbados on the basis of the terms contained in the released scenarios will not be supported by committee members and would likely place economic reform efforts at risk, to the detriment of the country’s financial stability and well-being,” it said.

The committee holds over 55 per cent of the aggregate total of the instruments it represents and is comprised of long-term investors, including regional and international financial institutions, pension funds, regional central banks, and individual bondholders, and is being advised by Newstate Partners LLP and Arnold & Porter.

In its creditors update, Government said in coming weeks it would continue discussions with its creditor community regarding its latest scenarios “with a view to adjust the structure of the bonds to meet creditor preferences so long as they are compatible with the debt sustainability criteria” laid out in its EFF with the IMF.

“The Government will remain engaged in good faith negotiations with the bondholder committee and welcomes further opportunities for constructive dialogue,” said Government, while pointing out that the latest proposal was not final, but it believed it had improved the proposed term.

Talks between Government and external creditors have been dragging on since June 2018, when immediately coming to office, the new administration announced that it was defaulting on all debt to restructure the country’s massive debt, which stood at about 175 per cent at the time.
marlonmadden@barbadostoday.bb