Debtors strike deal

After putting up a year-long fight, the Barbados External Creditor Committee emerged from a deadlock with the Mia Mottley Government with “an agreement in principle” similar to that accepted by local creditors, featuring reduced principal and interest indebtedness.

In an unexpected twist, the two sides issued a joint statement today, stating that “the agreement in principle includes a reduction of 26.3 per cent in aggregate sum of the original principal amount of the debt obligations and the past due and accrued interest as of October 1, 2019”.

It further explained that under the agreement, the external creditors would “exchange certain of Government’s US dollar denominated debt for new bonds issued by Barbados”.

This includes Barbados’ 7.8 per cent fixed rate bonds due 2019, 7.25 per cent notes due 2021, 7 per cent notes due 2022, 6.625 per cent notes due 2035 and a floating rate loan with final maturity in 2019. It is anticipated that the new bonds, due 2029, will be issued with an aggregate face value of US$500 million.

Reacting to the development this evening, President of the Barbados Economic Society Simon Naitram told Barbados TODAY the announcement of the deal was a good sign, adding that it was the “main outstanding concern” for the progress of the Barbados Economic Recovery and Transformation (BERT).

“Getting a deal done means that the Government’s fiscal strategy continues to make progress, and further shrinks our debt obligations,” said Naitram.

“In the end, the loss to external creditors appears to be relatively comparable to the loss to domestic creditors. After a much tougher negotiation, external creditors seem to have got themselves a slightly better deal,” he said, explaining that while most domestic creditors will receive their full principal over a longer repayment period, external creditors will receive a fraction of their full principal over a shorter period.

“Longer maturities and lower interest rates give the Government more fiscal space to manoeuver in the medium-term. And smoother payments in the long-run will give the Government more flexibility in planning its spending,” he said.

In addition to having a final maturity on October 1, 2029, the new bonds will have a five-year grace period on repayments of the original principal; a debt management provision through October 2024; equal semi-annual principal amortisations commencing April 2025 through the remaining term of the bonds and a fixed annual coupon of 6.5 per cent.

The new bonds will also have a “natural disaster clause” that would, subject to certain conditions and input from the bondholders, enable Government to “capitalize interest and defer principal maturities due on the new bonds for two years” in the event that Barbados is adversely affected by natural disasters.

There would also be a clause providing for the reinstatement of forgiven principal and past due and accrued interest if Government defaults on payment before the successful completion of the ongoing International Monetary Fund (IMF) programme.

Naitram said in addition to contributing to the fiscal management, this would also benefit the island’s foreign reserves in the medium-term.

“While in the short-run there seems to be some initial cash payout, the majority of the foreign exchange outflows have been postponed to after 2025. This creates additional breathing space on our foreign reserves, adding to the foreign exchange boost we received from international organisations. This gives us time to restructure our economy to put foreign reserves on an upward trajectory, and means we have to use this lifeline wisely,” said the economist.

“Given the path that we’ve chosen, this is a clear step towards the target that the Government has set. This is a preliminary agreement, and we await the conclusion. The long road to recovery continues,” he added.

The agreement comes mere months after external creditors, who hold over 55 per cent of the aggregate total of the instruments, unanimously rejected an offer presented by Government back in June.

After coming to office at the end of May last year, the Mia Mottley-led administration announced an immediate suspension of debt payments in an effort to restructure the country’s burdensome debt of 157 per cent of gross domestic product (GDP).

Government managed to reach a debt restructuring plan with local creditors by October last year, which included a cut in interest and longer payment terms, resulting in the island’s debt to GDP being reduced to around 125 per cent.

In its statement today, Government said it expected to launch a “parallel exchange offer for certain US-dollar denominated instruments issued under Barbados law in the coming weeks, effectively completing the comprehensive restructuring of the country’s high debt burden”.

“The agreement in principle reached by the parties, and the support of the members of the Committee for the proposed restructuring, is conditional on the parties reaching agreement on mutually satisfactory documentation setting out the detailed terms of the transaction and the new bonds. The Government and the Committee have agreed to commence work immediately on, and to work in good faith with their respective advisers to reach agreement on, mutually acceptable documentation and the implementation of the proposed transaction,” the release said.

“The Government and Committee members have also agreed to maintain an ongoing dialogue on economic and financial developments in Barbados following the conclusion of the proposed transaction which may include a provision of the new bonds to facilitate bondholder organisation and good faith interaction with Barbados,” it added. Government will, in the coming weeks, be launching the invitations to debt holders to participate in the restructuring.

Addressing a Barbados Tridents motorcade in Warrens, St Michael this afternoon, Prime Minister Mia Mottley spoke briefly on the development.

“On the first of June last year, we inherited a country that was the third most indebted country in the world. We had a debt to GDP ratio of 176 per cent and we said to the people of this country, ‘let us work together, because if we do it together, we can begin to reverse the trend of 19 credit downgrades that had us feeling as though we were smaller than small’,” said Mottley.

“Today, we reached an agreement with our creditors so that we can put behind us the chapter of the excessive debt creation and we can move on to rebuilding this country,” said the Prime Minister.
marlonmadden@barbadostoday.bb