Government maintaining consultation with holders of US-dominated commercial debt

Government maintaining consultation with holders of US-dominated commercial debt

Friday, June 14, 2019

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BRIDGETOWN, Barbados (CMC) —The Barbados Government Tuesday said it is continuing to hold discussions with holders of its United States dollar-denominated commercial debt.

In a “Creditor Update” released here, the Mia Mottley Government said that the consultation is on the restructuring terms that will be required to place the public debt firmly on a sustainable footing, in conjunction with the October 2018 restructuring of its BDS$12 billion (One BDS dollar=US$0.50 cents) domestic debt stock, and the far-reaching economic reforms being implemented under the current US$290 million four-year Extended Fund Facility (EFF) with the International Monetary Fund (IMF).

The Government said that 60 per cent of its debt to gross domestic product (GDP) by financial year 2033-34 “is a key anchor for the IMF-supported programme under the EFF, with an intermediate target of 80 per cent by financial year 2027-28”.

It said that this “anchor” has guided its position during the consultations with external commercial creditors on the restructuring of their claims, “along with the need to achieve a smooth repayment profile post-restructuring and broad comparability with the domestic debt restructuring concluded in October 2018”.

According to the Creditor Update, as part of these consultations, various rounds of discussions have been held with the bondholder committee, mostly within the context of a non-disclosure agreement (NDA).

The Mottley Government said that as part of these discussions, it has sought to improve its proposals from the point of view of bondholders, whilst respecting the debt targets as agreed with the IMF under the EFF-supported programme.

It said it has also received and analysed various counter-proposals from the bondholder committee and that for the benefit of its broader creditor community, it was disclosing the last scenario that was shared with the bondholder committee as well as a new scenario based on a par structure.

“The combined proposal assumes that Barbados will offer holders of its 7.25 per cent Notes due 2021, seven per cent Notes due 2022, 6.625 per cent Notes due 2035 (collectively, the “Eurobonds”), and the Credit Suisse 2018 and 2019 loans the option to exchange their existing instruments either into new Amortising Step-Up Notes due 2033 (issued at a discount to face value), or for new 3.25 per cent Amortising Notes due 2044 (issued at par).”

It said that first scenario of the Government's latest restructuring proposal was presented to the bondholder committee in May 2019 and is the outcome of the consultations that it has maintained with its creditor community over the course of the year.

“Both scenarios are at the limits of what is compatible with the debt sustainability framework that underpins the EFF. In particular, both scenarios make full use of the cash flows available over the four years of the EFF; allow the debt-to-GDP ratio to reach 60 per cent in FY2033/34, together with the October 2018 local currency debt restructuring and the fiscal correction presently underway (and) result in a relatively smooth and manageable repayment profile, that will not leave Barbados exposed to material levels of refinancing risk.”

The Government said that in the coming weeks, it will continue discussions with its creditor community around these scenarios, with a view to adjusting 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.

It said it “will remain engaged in good faith negotiations with the bondholder committee and welcomes further opportunities for constructive dialogue.

“Once this final consultative phase has concluded, the GoB intends to launch a formal exchange offer open to holders of its Eurobonds and the Credit Suisse 2018 and 2019 loans.

“It is expected that affected holders will have a period of approximately three weeks to consider and respond to the offer. It is anticipated that holders of other unsecured US-dollar denominated instruments will receive separate but comparable offers around the same time,” the Government said.

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