Belize To Restructure Debt As Ratings Downgraded To 'SD'

by Leroy Baker, Tax-News.com, New York

11 December 2006

The Government of Belize has announced that it will seek the approval of the Belizean National Assembly for the financial terms of an offer to exchange most categories of Belize's outstanding external commercial indebtedness for new US Dollar Bonds.

If approved by the National Assembly, the exchange offer will be formally launched later this month.

The announcement was made shortly before international ratings agency Standard & Poor's revised Belize's foreign currency sovereign credit rating to selective default last Thursday. S&P also revised its long-term foreign currency ratings to "D" on its rated bonds.

The Belizean government's action comes after four months of intensive consultations by Belize and its financial advisers with the affected creditors.

The government said that the financial terms for which approval is being sought are based on economic data and forecasts that have been published by the International Monetary Fund as part of Belize's most recent Article IV Consultation, and take account of the views expressed by creditors during the period of consultations.

"The creditor consultations were very helpful to us in defining the terms for which parliamentary approval is now being sought," stated Mark Espat, Minister of National Development of Belize.

He continued:

"A consensus seemed to form around the maturity date of the New Bond (twenty-two years), as well as on the desirability of preserving principal at the aggregate level. The most debated issue was the proper coupon structure of the New Bonds. Some creditors proposed a total debt service holiday in the early years, followed by an immediate jump back to very high fixed coupons. Others advised a more gradual, step-up coupon structure, consistent with Belize's projected capacity to pay.

"We concluded that Belize can afford to make some coupon payments, even in the early years and that it would be unfair to our creditors to ask for a complete debt service holiday. We will therefore be following a step-up coupon approach. The level of these coupons, however, has been set well above Belize's indicative restructuring scenarios. They are, in effect, at the outer edge of what forecasts show as being affordable for the country."

The Government is seeking National Assembly approval for the issuance of New Bonds that will mature in 2029, with principal payments commencing in 2019. The New Bonds will bear interest in the first three years after issuance at a fixed per annum rate of 4.25%. In years four to five, the rate will increase to 6.00%, and thereafter through the maturity of the New Bonds the interest rate will level off at 8.50% per annum. All coupons will be paid in cash on their respective due dates.

The terms of the exchange offer are expected to provide that all participating creditors will receive a cash payment at the closing of the transaction equal to unpaid interest on their tendered claims accrued through the closing date. Consequently, interim debt service payments on the existing debts eligible for this exchange offer will cease immediately.

Belize has been forced to restructure its debt despite the government having undertaken savage fiscal cut-backs which cut a deficit of 9% of GDP to 3% in just two years according to the IMF.

Currently, Belize has six outstanding international bonds totaling $338 million and $253 million in commercial loans. A further $116 million is accounted for by domestic debt.

Prime Minister Said Musa has blamed four tropical storms which hit Belize between 1999 and 2003 for the country's woes, also mentioning a major infrastructure investment programme and rising oil prices.

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