12:41pm EST
-- There are signs that the Belizean government is becoming less willing to service its external commercial debt.

-- In addition, Belize faces external imbalances, limited access to external funding, and rising costs of servicing general government debt.

-- As a result, we have lowered our long-term foreign- and local-currency sovereign credit ratings on Belize to 'CCC+' from 'B-'.

-- The stable outlook balances the possibility that the government will seek debt relief to reduce a rising external interest burden against the possibility that debt management will improve after the election.

Feb 6 - Standard & Poor's Ratings Services said today that it lowered its long-term foreign- and local-currency sovereign credit ratings on Belize to 'CCC+' from 'B-'. The 'C' short-term credit ratings are unchanged. The outlook is stable.

"The downgrade reflects signs of lower political willingness to service Belize's external commercial debt obligations," explained Standard & Poor's credit analyst Kelli Bissett. "In addition, Belize faces external imbalances, limited access to external funding, and rising costs of servicing general government debt." On Jan. 31, 2012--during an announcement scheduling early elections for March 7, 2012--Belizean Prime Minister Dean Barrow introduced continued debt service of the government's US$546.8 million bond (known locally as the super bond) as an election issue. The nature of the statement and prominent public office of the speaker signals, from a credit perspective, lower predictability that the government will continue to service its external commercial debt. Although a future United Democratic Party (UDP) government could ultimately back away from its leader's campaign rhetoric, the injection of the superbond into the campaign follows increased policy unpredictability (including the nationalizations of Belize's main electricity and telecom companies in the last two years) and raises questions about the political commitment to timely debt service.

In addition, this announcement comes amid low economic growth, a weak investment outlook, increased levels of crime, and limited ability to raise government revenue, all of which, from a credit perspective, weaken the government's payment capacity. Belize's current account is weakening, and its external financing options are limited. Oil production (the government's most import foreign exchange earner) is in structural decline, and tourism prospects appear lackluster given the global economic slowdown. We project Belize's 2012 gross external financing requirement at 114% of current account receipts plus useable reserves. Belize's policy measures will likely depress foreign direct investment. Given Belize's fixed exchange rate regime, we expect the government to draw down reserves for a portion of its external financing. International reserves were US$250 million at the end of January. We expect that international reserves will decline this year and that delays in market participants obtaining foreign exchange will increase. On the fiscal side, a shallow domestic financial market--coupled with domestic resistance to raise tax revenue--present a hard budget constraint.

In addition, the coupon on the super bond is scheduled to step up to 8.5% annually from 6% in August. With that, we project that general government interest payments will rise to 15% of general government revenues. Furthermore, we expect government workers and teachers to demand higher wages once the next budget debate begins. Net general government debt was 63% of GDP at year-end 2011. Given Belize's financing constraints, we expect it to remain at this level through 2012. (For an expanded discussion of these risk factors, please see our latest report concerning Belize, published Dec. 28, 2011, on the Global Credit Portal.) The local-currency ratings on Belize are 'CCC+/C', the same as the foreign-currency rating, reflecting the country's pegged exchange rate and limited monetary and fiscal flexibility. The transfer and convertibility assessment is 'B-', one notch above the long-term foreign-currency sovereign rating, under our expectation that in the event of default, the government would not actively restrict access to foreign exchange for private debt service. The foreign-currency recovery rating of '3' for the Government of Belize indicates our forecast of post-default recovery of between 50% and 70% on the principal of commercial foreign-currency debt. In our default scenario, we would expect the government to pursue a best-efforts approach to restructure its debt, as it did in late 2006 (which gave rise to the super bond).

The recovery estimate, however, also incorporates constraining factors of relatively high levels of both public-sector and external debt. The stable outlook balances the possibility that the government will seek debt relief to reduce a rising external interest burden against the possibility that debt management will improve after the election. We could lower the rating if there were increased signs that the government intends to pursue a distressed restructuring or if additional external liquidity pressures were to emerge. An upgrade would most likely result from greater predictability about the political willingness to service debt and improved financing prospects. These would likely stem from an improved growth and investment outlook.

from a friend

If I understand the S&P ratings, this means that the only rated country in the world with a lower S&P rating than Belize is Greece (not all countries are rated by S&P).

This is not good.

S&P pushed Belize’s Credit Status deeper into junk territory

As you know, the date for the general elections was announced last Tuesday by Prime Minister Dean Barrow, almost a year before they are due. What was probably missed by most people in his televised and radio statement had to do with huge debt that Belize owes internationally. Prime Minister Barrow said that his administration would seek “clear instructions” from the electorate to “do something about the Super Bond.” What that “something” is was not spelt out by the PM but it has created great ripples in the financial markets internationally. Standard & Poor’s Ratings Services, for example, has pushed Belize’s credit status a notch deeper into junk territory because it viewed the PM’s comments as signaling less of a political will to service its debts. According to S and P, the announcement comes amid “low economic growth, a weak investment outlook, increased levels of crime, and limited ability to raise government revenue, all of which, from a credit perspective, weaken the government’s payment capacity.” Similarly, Moody’s Investors Service has said that the PM’s comments raised serious concerns about the U.D.P. government’s willingness to service its debts. These rating agencies take the view that the decision of the PM to bring the government’s five hundred and forty-six point eight million dollar bond into the election fray makes GOB’s continued debt servicing less predictable.

Channel 5

Barrow’s suggestion of super bond restructuring “credit negative”: Moody’s

A recent pronouncement by the Barrow administration, in its bid for reelection, that it will seek the electorate’s instructions on the billion-dollar super bond has caught the attention of a major international ratings agency.

“The mention of a potential modification to the super bond, a US$565 million bond equivalent to half of all government debt and the result of the 2007 debt restructuring, is credit negative and raises concerns about another debt restructuring,” said the Weekly Credit Outlook issued by Moody’s Investors Service, and dated today, Monday, February 6, 2012.

Moody’s, in a report by Gabriel Torres, Vice President - Senior Credit Officer; and Maria Paula Carvajal — Associate Analyst, referred to Prime Minister Dean Barrow’s speech last week announcing the date of General Elections.

In that speech, Barrow said, “We, therefore, ask for your clear instructions to drive the naysayers back; to do something about the super bond,” which the ratings agency saw as a hint of a possible restructuring of the debt.

The graph accompanying the Moody’s statement on Belize shows that the monies payable for the next term of government, 2012-2017, would increase by US$10 million over this year’s payments; however, the increase is far more substantial for the subsequent term.

In fact, in 2019, Belize will have to start making principal payments on the super bond, which would mean the US$40 million payment (the current year’s repayment) would balloon to nearly US$100 million over a span of 7 years.

Moody’s notes today that, “Super bond debt service has been rising owing to coupon step-ups and will rise even further once the debt begins amortizing in 2019, putting increasing pressure on already weak public finances.”

It went on to say that, “Belize (B3 stable) restructured most of its debt in late 2006 and early 2007, after years of increasingly higher funding needs that peaked at over 20% of GDP in 2005.”

It noted that after the 2006/2007 debt restructuring, the government’s funding needs fell dramatically to less than 5% of GDP last year.

It adds, however, that “...concerns remain about the long-term fiscal position as the restructured debt service increases.”

Of note is the variation of interest rate for the super bond: “It has a stepped-up coupon, at 4.5% for the first two years, 6.5% for the next two, and jumping to 8.5% later this year,” the outlook report explains.

“Given low economic growth, estimated at 2.2% on average 2007-12, and expectations of lower royalties from oil production, which has been declining 5% a year and is a key government revenue source, managing the increase in bond payments was always going to be a challenge for Belize,” the report added. “The administration’s declarations open the door for a possible new restructuring, even before the greater bond-related fiscal costs fully materialize.”

Amandala

@#%*! more fuel for the oil drilling revenue fires...

Maybe Belize should hire some Greek financial consultants?

Maybe!or perhaps Germany happens to like baklava...

SCOTIABANK Analyst Urges Market To Be Calm On Bze Bonds

The international rating agency Standard and Poors audibly gulped when Prime Minister Dean Barrow said in his election announcement that he would seek "clear instructions" from the electorate "to do something about the superbond."
S and P automatically downgraded Belize saying that it appeared Government would not honour its superbond commitments. That sent bondholders scrambling trying to sell off the bond, but an analyst for SCOTIABANK international is advising a wait and see approach.

In a piece called "What did Belize's Prime Minister mean?" he notes that quote "We cannot know for sure what the government is planning in the long-run…Nevertheless, past speeches by government officials about the bonds suggest more willingness-to-pay than the market is currently pricing." End quote. He points also to positive GDP growth and that "the Belizean government insists, at least to foreign investors, that it has every intention of making upcoming coupon payments."

The bond is trading at $45 dollars, 15 dollars less than it was a month ago.

Channel 7

Bear: At least the Greeks can pay Germany off in baklava, olives and gyros... what will Belize pay with? Johnny Cakes? Rice & beans?

indeed point well taken, but there must be something...Menonites?, tourists? wacky tabaccky? let me get back to you on that one Jeff...at the moment my spouse has me reviewing some damned thing called FBAR...

perhaps they would like an ACMB poster....or two.

PM Barrow Responds To S&P Downgrade

Last week we reported that Standard and Poors has downgraded Belize's rating which sent the price of the superbond tumbling down to between forty and forty three dollars.

You might think that's bad news but two international analysts have come forward to say it might be a good thing, after all.

One of them form the Nomura group even outlines a scenario where a bondholders should prepare for a superbond 2.0 - which would fetch a decent yield.

Today PM Barrow told us that's just the reaction he was hoping for:

Prime Minister Dean Barrow - Prime Minister of Belize
"When there is a downgrade, to some extent, it signals to bond-holders that they might want to start thinking of coming to terms with the Government since - for their purposes - the intent of the downgrade is to show that unless there is a restructuring of the superbond, Belize might want to contemplate the option of saying either that it can't pay, or that it won't pay. I need to make it clear that while the step-up to 8.5% interest rate occurs this year - occurs in August, we have the monies to pay the February installment, and we have the monies to pay August installment. There's no difficulty there, but I do want to say that as the analysis indicate, we will be talking to the international community - talking to the bond-holders - to say that sooner or later, there has to be a restructuring."

Channel 7

PM responds to Standard & Poors’ downgrade

We start the news tonight with news on the financial front following a downgrade of Belize’s credit rating by Standard and Poor’s. The downgrade came after Prime Minister Dean Barrow said in his election date announcement that he was going back to the electorate to “ask for your clear instructions to drive the naysayers back; to do something about the super bond.” That statement pushed the country into junk bond status from a B minus to a CCC plus rating last week. S&P said that “The nature of the statement and prominent public office of the speaker signals, from a credit perspective, lower predictability that the government will continue to service its external commercial debt. [It] raises questions about the political commitment to timely debt service.” S&P added that “low economic growth, a weak investment outlook, increased levels of crime, and limited ability to raise government revenue, all of which, from a credit perspective, weaken the government’s payment capacity.” The PM made a statement today to cool down the credit rating agency. He said that two super bond payments are scheduled for February and August and will be met. News Five also asked the PM how the downgrade will affect the country.

Dean Barrow

“The downgrade does not in any ways affect us domestically. I made the point already that these rating agencies and the rankings they assign are important for those operating on the capital markets; who are borrowing commercially. Depending on your ranking, your borrowing cost either increase or decrease. We don’t borrow on the commercial markets so the ratings are of no practical consequence to us but in respect to the super bond, when there is a downgrade to some extent it signals to the bondholders that they might start thinking of coming to terms with the government since for their purposes the intent of downgrade is to show unless there is a restructuring of the super bond, Belize might want to contemplate the option of saying either that it can’t pay or it won’t pay. I need to make clear that while the step up to the eight point five percent interest rate occurs this year in August, we have the monies to pay the February installment and we have the monies to pay the August installment—there is no difficulty there. I so want to say that as the analyses indicate, we will be talking to international community, talking to the bondholders to say that sooner or later, there has to be a restructuring. If you think far ahead and you think about 2019 when you begin to look at a principal repayment, it ain’t going to happen; it can’t happen. I might take the view, well that’s not my concern—I won’t be around in 2019—but I believe that I have tried to make a case for Belizean nationalism. I have tried to make a case of looking out for Belizean interest and in that vein; I want t be certain that in a second term we do something about restructuring of the super bond.”

Channel 5

What to do with Belize’s superbond

This year’s renewed euphoria over emerging markets has bypassed some places. One such corner is Belize, a country sandwiched between Mexico and Guatemala, which many fear is gearing up for a debt default. There is a chance this will happen as early as next week

Belize is a small country with just 330,000 people but back in 2007, it issued a $550 million bond on international markets. Known locally as a superbond for its large size (relative to the country’s economy), the issue earned Belize a spot on JP Morgan’s EMBI Global index of emerging market bonds.

As this index is used by 80 percent of fund managers who invest in emerging debt, many of them will have allocated some cash to hold the Belize bond in their portfolios. These folk will be waiting anxiously to see if Belize pays a $23 million coupon due on Feb. 20.

Never very liquid, the bond has taken a sharp lurch downwards since Feb.7 when Prime Minister Dean Barrow said in a pre-election speech that he would seek “instructions” from the electorate to “do something about the bond”. That unsurprisingly triggered panic selling and the bond now trades around 40 cents on the dollar, down some 20 cents since the start of February. The yield has risen sharply to 23 percent from 16 percent and and the Belize spread over U.S. Treasuries — the premium that investors demand to hold the bond — has blown out to almost 2000 basis points, higher than any other country in the EMBI Global index. That’s a rise of 400 bps since the day of Barrow’s speech.

Exotix, a frontier market-focused brokerage says:

What happens next? We think the government will pay the forthcoming 20 February coupon but clearly there is a risk that it won’t. But even if it does, that does not remove the uncertainty now hanging over the bond… The government has the money and it might be counterproductive politically to default just before a general election. However we do acknowledge that the bond’s domestic unpopularity and the low price make non-payment an easier option.

Regionally, there are some parallels with Ecuador which in 2008 defaulted on debt the government said had been contracted unlawfully by a previous administration. Investors pointed out at the time that Ecuador’s president Rafael Correa had the cash to pay but did not want to. If Belize misses the Monday coupon, it will not be for want of cash — the central bank has $240 million in its coffers.

Longer-term however, it looks unlikely that Belize can keep up with payments. The country has a clearly unsustainable debt-GDP ratio of over 80 percent. The bond’s structure means that coupons “step up” gradually and this year the annual coupon jumps to 8.5 percent from 6 percent. So debt service costs rise by over a third to $46.2 billion from this year, Exotix calculates. That will go up even further from 2019 when Belize must start paying back the principal of the debt rather than just the interest. So even if Barrow pays next week’s coupon, bondholders may do well to prepare for more such noise in future.

Reuters

What about the Superbond? - PM says Government will deal with it!

vvvv

On Monday February 20th, the government of Belize will have to pay BZ$33,537,066.66 to service the Superbond. That means that taxpayers across the country will bear that brunt. In announcing the election date, Prime Minister Dean Barrow told the electorate that the UDP government is seeking a new mandate but more than that, the UDP is asking the people to do something about the Superbond.

That announcement sent chills down the spine of those holding the bond so much so that there was speculation that the government may default on payments. The rating agency Standard & Poor’s took it so seriously that it downgraded Belize’s ratings from B- to CCC. For context, ratings matter for countries who make commercial loans, as was the case under the PUP administration. The Prime Minister has said that he is not concerned about that rating since the current UDP administration is not in the business of getting commercial loans. All monies that are borrowed are done so at concessionary interest rates from development agencies like the Inter American Development Bank, and the World Bank. As for the concern that the government will default, the Prime Minister has said “Not So” but he has admitted, like any responsible leader would, that the Superbond is simply something that cannot be maintained. During his National Tour, which saw him visit the Toledo district, he made it clear that every bad loan begins with a bad creditor. For context, it is to be noted that the Superbond is a combination of bonds taken out by the PUP administration between 2003 and 2007 where they sought financing from international commercial banks at exorbitant interest rates. The institutions giving out the loans had absolutely no concern on the country’s ability to pay the debt, yet they doled out hundreds of millions of dollars to a government knowing fully well that at some point the debt could not be paid back.

The payment on the bond started off at a 4% interest rate in 2007, it went up to 6% and the next payment due on August 20th will go up to 8.5 percent and it will remain there until 2029 when the last payment will be made. Now the international lenders are standing at the cliff, so much so that in an article by Reuters entitled ‘What to do with Belize’s Superbond’ by Sujata Rao on February 15, 2012, it states that “the bond has taken a sharp lurch downwards since Feb.7 when Prime Minister Dean Barrow said in a pre-election speech that he would seek “instructions” from the electorate to “do something about the bond”. That unsurprisingly triggered panic selling and the bond now trades around 40 cents on the dollar, down some 20 cents since the start of February. The yield has risen sharply to 23 percent from 16 percent and the Belize spread over U.S. Treasuries — the premium that investors demand to hold the bond - has blown out to almost 2000 basis points, higher than any other country in the EMBI Global index. That’s a rise of 400 bps since the day of Barrow’s speech.” The article continues to explain that “If Belize misses the Monday coupon, it will not be for want of cash - the central bank has $240 million in its coffers.”

It’s quite the scenario and former creditors to the country are watching it closely. But for Belize, its something that the people not only watch, we live it. A 33 and a half million dollar dent on the economy on February 20th is something that is felt across the country. All this money could have been channeled elsewhere. But for the sake of servicing a Superbond that was taken out by the former PUP government, the people of Belize cannot see the benefit of this money.

What makes matters worse is that there is absolutely nothing that can be shown for it. What we can say however is that the members of the People’s United Party, as has been pointed out by their former party leader, Johnny Briceno, made off with millions upon millions of dollars of the people’s money.

The Guardian

Belize’s Credit Rating Cut One Level to Caa1 by Moody’s

Belize’s credit rating was cut by Moody’s Investors Service Inc. on “significant questions about the country’s willingness” to make debt payments.

Moody’s cut Belize’s foreign-currency credit rating to Caa1, or seven steps below investment grade, from B3. The rating will remain on review for further downgrades, Moody’s said in a statement.

The change reflects increased concerns the government will seek to restructure its debt after comments about such a move by the prime minister ahead of upcoming elections, Moody’s said.
“Recent statements coming out of Belize suggests this administration may eventually contemplate modifying the original conditions,” Moody’s said.

Bloomberg

==================

Moody's Cuts Belize Ratings On Debt Restructuring Concerns

Moody's Investors Service lowered its credit rating on Belize one notch further into junk territory, citing increased concerns of another possible debt restructuring.

Moody's lowered Belize's government bond rating to Caa1, which denotes highly speculative credit, from B3. The rating remains on review for a possible further downgrade.

Moody's said recent comments from Belize suggest the administration may eventually modify the original conditions of its $547 million superbond, which is equivalent to half of the government debt and is the result of the country's 2007 distressed debt exchange. Superbond debt service has been rising due to coupon step-ups and will continue to increase once the debt begins amortizing in 2019. This will put further pressure on Belize's generally weak public finances, Moody's said. The coupon on Belize's superbond began at 4.25% and is scheduled to jump to 8.5% later this year.

The ratings firm said managing increased debt service payments poses significant financial challenges for Belize, which already faces weak economic growth prospects and expectations of declining oil royalties--a key source of government revenue.

Moody's downgrade comes a week after Standard & Poor's Ratings Service also pushed Belize's credit status a notch deeper into junk territory after comments from its prime minister signaled less political will to service its large debt.

Dow Jones

A good thing? Restructuring might bring more yield to bond holders but hardly a good thing for Belize.

PM says Superbond is Jack Boot on throat of Belizeans

The super bond slid into the election campaign when the prime minister announced the date for early general elections. He said he was going back to the people for instructions to do something about the super bond. The result was a prompt downgrade to junk territory of Belize’s credit ratings from agencies such as Standard and Poor and Moody’s. If he was floating that idea, today, at the launch of the U.D.P. Manifesto, Prime Minister Barrow was more provocative. He said he was not concerned at all about the Belize’s credit ratings and that bond holders would have to sit around the table with a future U.D.P. government to re-negotiate the five hundred and sixty-five million dollar bond. The February payment has been made but another is due past the elections in August, which according to the PM’s bravado, he won’t pay at eight and half percent interest rates.

Dean Barrow

“I was deliberate in announcing the date of the election, deliberate in saying that the U.D.P. was asking for a new mandate to among other things, do something about the super bond. Now, that really set the cat among the pigeons. And you say that the so called rating agencies fell all over themselves to say’ oh wi di downgrade Belize bonds. Explain to mi how Mr. Man downgrading the Belize bonds hurts the Belizean people? The Belize Bonds are the bonds that are owned out there by all those that loaned the People’s United Party this one point one billion dollars for which there is nothing to show. And if you downgrade the bonds so that the bonds have less value, I say that that strikes me something like poetic justice, because while the greatest blame for the share of saddling this country with the super bond must lie with the P.U.P., the creditors, the bond holders, the commercial entities, agreed to that super bond, knowing full well that the kind of burden it was placing on the Belizean people is absolutely unconscionable, merciless; those people also have a share of the blame. Therefore, this eight and a half percent that we have to begin to pay as of August of this year, which means ninety-four million dollars of our re-current revenue that ought properly speaking to be spent on you the people of this country. This eight and half percent interest rate, we will not suffer. Belize is a country that is a country of honor; we do not easily renege on commitments but if there are commitments that in effect represent a jack boot on the throat of the Belizean people, then unless those that are applying that jack-boot are prepared to re-negotiate, they will see that the Belizean people are not going to take it. We won’t lie down so that anybody could tek chance on us and the bottom line is, ‘Mr. Bond holder, Mr. Bad creditor, come to the table and renegotiate with Belizeans. You are obliged to give us a fairer deal.”

So what will be the impact of the prime minister’s statement? Well, it is likely that there could be a further erosion of investor’s confidence and that the economy could continue to languish. At the launch of the People’s United party manifesto on Tuesday, Francis Fonseca, called on the PM to whining about the super bond and put the economy back to work. The super bond is a consolidation of government loans that was negotiated in 2006 and concluded in 2007. It also includes loans made by former U.D.P. administrations.

Channel 5

Screw the Rating Agencies!!!

PM Hon. Dean Barrow

The Prime Minister of Belize has not and will not shy away from his comments that prompted S&P’s decision to downgrade Belize’s credit rating. It was no slip of the tongue. PM Barrow is asking the people of Belize for a clear mandate on what to do about the Superbond. PM Barrow said that it is not government’s intention to stop servicing the bond but the bond holders cannot expect us to continue paying at the rates we are paying now. Upon being elected back to office, government will immediately appoint a committee to gauge the wishes of the Belizean people and go to the bondholders to renegotiate the terms of the Superbond. Our stand will be simple. We will not continue to pay at these rates!

S&P’s downgrade has little to no effect on this government. It only affects borrowing from international commercial lenders. While in Opposition, the United Democratic Party condemned government’s borrowing from commercial institutions and is staying true to its philosophical stance against the practice. This government does not and will not borrow from commercial lenders. Therefore, S&P can do whatever they want. The time when international agencies dictate Belize’s actions is over. We are a sovereign nation-masters of our destiny. S&P needs to tell the bondholders that “Belize di com.”

The Guardian

COLA Scolds PM Over Superbond

There's only one week to go before the double election and for all those who want to rock the boat, send a message or get some free publicity - now is the time. We don't know quite where the COLA activist group fits into that free for all - but today they called a press conference basically to scold the Prime Minister for his outspoken statements on the Superbond.

Now the COLA members are known to make some pretty outspoken statements themselves - but the group is more circumspect and measured on this one - and is urging the PM to do the same.

They certainly got the attention of their fellow activists - it was like an Alphabet Soup of activist groups up in the audience at the Biltmore today, from the BFJ, to CIFOS, to BELIZECAN, to the Commoners, to the VIP and a couple others who may still be buying a few vowels.

And before this sympathetic audience, COLA President Giovanni Brackett told the PM, hold it down:

Giovanni Brackett - President, COLA
"The PM's statement, which has caused great alarm both internationally and locally, is not only irresponsible, but it could be detrimental, if the perceived possibility were to come to fruition. Despite the election season, we ask the Prime Minister to be more tactful in his speech. We call on the Prime Minister to cease and desist from the uses of such inflammatory language."

Patrick Menzies - BELIZE-CAN
"We want to resolve the issue, so all we're saying is PM, consider what you are saying. No one in their right mind can say that Belize does not need a restructuring. We need a restructuring, but we don't go demanding on my terms take it or leave it. That's not the way you negotiate. You go in there with humility."

Jules Vasquez
"The last time I saw you negotiate, you issued two of the same ultimatums, none of them which were effected."

Patrick Menzies
"Because I was not negotiating. I said if - please go back and pay attention. I said, 'PM, I did not come here to negotiate. The reality is you do this, or you do this, period, or we go back to where we are.' That was what I said."

COLA has not reserved its options, but restrained itself from proposing any direct action events over the Superbond...

Channel 7