Weeks after Government cemented a deal with external creditors, regional credit ratings agency Caribbean Information and Credit Rating Services Limited (CariCRIS) today lifted its foreign currency sovereign debt rating out of default territory.
In a release, CariCRIS said it had removed its CariD (Default) Regional Scale Foreign Currency Rating of the Government of Barbados and has assigned a rating of a CariBB-, with a stable outlook.
CariCRIS said: “This rating action places the Regional Scale Foreign Currency Rating one notch below our current Government of Barbados Regional Scale Local Currency rating.” The local currency rating is currently at CariBBB.
Immediately after the Mia Mottley administration came to office and announced a debt restructuring deal, CariCRIS had put the island on a “rating watch”.
But today, the Port of Spain-based agency said its decision to upgrade the rating on the Barbados government’s foreign currency debt was driven by the successful closure of the exchange offer for external commercial debt.
It said: “The [Government of Barbados] has indicated that the closure of the transaction allows it to immediately reduce its outstanding external debt principal by 25 per cent and accrued interest by 35 per cent, and to meet its debt-to-GDP target of 60 per cent by 2033/34.
“In total, the GOB immediately benefits from the cancellation of just over US $200 million in debt and would generate approximately US$500 million in cash flow savings over the next five years.”
CariCRIS declared that repayment of the restructured foreign currency debt should not harm either the foreign exchange reserves or its primary balance.
The statement said: “We are informed that the new bonds consist of (i) a US $547 million, 6.5 per cent semi-annual (April 1 and October 1), 10-year bond, due October 1, 2029, and (ii) a US $32.5 million, 6.5 per cent semi-annual (April 1 and October 1), 3-year bond, due February 1, 2021.
“The latter bond would be used to settle interest that has accrued since June 1, 2018, when debt repayment was suspended. The 10-year bond would be amortised but with a grace period ending April 1, 2025.
“Additionally, a Sinking Fund for meeting repayments will be established.
“The bonds will also benefit from ‘natural disaster clauses’, making their repayment structure more sustainable.
“Participation in the exchange invitation was near universal, at upwards of 93 per cent; significantly above the 75 per cent required to give the government of Barbados the power to mandatorily replace all of the relevant debt.”
As she addressed the Queen’s College prizegiving and award ceremony, Prime Minister Mia Mottley acknowledged the CariCRIS upgrade, saying she expected more to come.
Mottley told the QC students: “Yes, we are solving the debt issues, and yes, by next week of the new bonds for external debt will be behind us, yes, we have gone from 176 per cent [debt to gross domestic product (GDP)], and by next week we will be around 114 per cent of debt to GDP.
“Yes, we have investments to do and all of them are starting to unfold but all of that will come to nothing if we don’t get the equation right for you to be the future of this country to help us with future Barbados and for you to understand that as you do it the measurement of your success is not in scholarships and degrees along, but in the content of your character, in your ability to live good with one another and your ability to be able to manage conflicts.”
CariCRIS said it would be releasing its full rating rationale on Barbados later this month.
This is the third upgrade the island received in the last year, the first coming November 2018 when Standard & Poor’s (S&P) raised its long and short-term local currency ratings for the island from selective default (SD/SD) to B-/B.
S&P had also assigned a B- local currency issue rating on the domestic debt issued in the debt exchange a month earlier.
Then in July, ratings agency Moody’s announced that it had raised Barbados’ foreign and local currency issuer ratings to Caa1 from Caa3, affirmed the foreign currency senior unsecured bond rating at Caa3 and maintained a stable outlook.