Belize disappointed in bondholder committee restructuring proposal

By Caroline Salls

Pittsburgh, Nov. 29 - The Government of Belize (GoB) said it has received a counter-proposal from a coordinating committee representing four large bondholders in connection with the proposed restructuring of the country's U.S. dollar step-up bond due 2029 that includes "unsustainable" scenarios.

According to a memorandum sent to bondholders, Belize "is disappointed that a counter-proposal of this nature has come five months after discussions with the committee began."

Committee scenarios

The country said all three of the alternative scenarios included in the committee's proposal are based on par structures. The scenarios combine temporary reductions in the current coupon rate with modest extensions in average life.

According to the memorandum, all of the alternative scenarios involve a return to the current 8½% coupon upon the expiration of a reduced coupon period.

In addition, Belize said the counter-proposal specifies a series of required terms as an accompaniment to the three scenarios, including the issuance of GDP warrants/oil recovery certificates, the inclusion of net present value reinstatement clauses and the payment of consent fees to participating creditors.

"While acknowledging that the committee's counter-proposal provides a degree of short-term cash flow relief, the GoB considers it to be wholly incompatible with its objective of placing the country's debt burden on a sustainable footing," Belize said in the memorandum.

"The GoB believes that the counter-proposal ignores Belize's high overall debt levels, and that it amounts to little more than a short-term fix not dissimilar to the 2007 exercise."

Projections adjusted

In the weeks leading up to the submission of the committee's counter-proposal, Belize said it made important adjustments to its medium-term projections.

Some of the adjustments were made in response to suggestions made by bondholders, and others stemmed from discussions with the International Monetary Fund (IMF).

The adjustments include the following:

• Real GDP growth in 2012 and 2013 is now expected to reach 3.3% and 2.3%, respectively. On the back of this revision and of an updated analysis of global growth prospects, the GoB said it has made an upward adjustment to its medium-term growth outlook, taking the real GDP growth assumption used in its medium-term projections to 2.5% from 2%;

• Belize is expanding its original $45 million annual official sector lender disbursement assumption at an annual rate of 2%, beginning in 2013;

• In terms of its medium-term projections, the GoB has stripped out the debt service that had been factored in on account of outstanding compensation due to the former shareholders of nationalized utilities and has instead "ring-fenced" the equivalent of 0.35% of GDP each year from projected fiscal inflows; and

• The additional resources resulting from the changes will be applied to revised indicative restructuring scenarios in the areas of principal reduction, principal grace period, final tenor and coupon.

Specifically, principal reduction will remain at zero under a par scenario and be reduced to 33% from 45% under a discount scenario; principal grace period will be reduced to 10 years from 15 years under a par scenario and remain at five years under the discount scenario; final tenor will be reduced to 40 years from 50 years under the par scenario and remain at 30 years under the discount scenario; and the coupon will be changed to 2¾% for five years and 4½% thereafter under the par scenario from 2% and 4½% for five years and 6¾% thereafter under the discount scenario from 3½%.

Belize said it will seek feedback on the revised indicative scenarios from bondholders and will remain open to discussing alternative structures that yield comparable levels of debt relief.

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