The prime minister’s health aside, the call to New York was for the three-man team, including Economic Ambassador Mark Espat and Financial Secretary Joseph Waight, to sit down with government’s advisors. The meeting with representatives of Citigroup Global Markets and Cleary Gottlieb Steen and Hamilton was to ensure that they were all on the same wavelength insofar as an agreed position going into discussions with the Belize Coordinating Committee. Despite the dismal economic conditions, the idea, according to PM Barrow, is to be able to conclude the restructuring of the Super Bond 3.0 ahead of the next scheduled interest payment in February 2017.
Prime Minister Dean Barrow
“I did not meet with the bondholders. I went to meet with our team prior to their meeting with the bondholders because this is the point now where the rubber is beginning to meet the road. Certain things have happened since I last met with the team that required us to do a rethink of our objectives and our strategy and I had to be perfectly sure that we were all on the same page, that in the meeting with the bondholders which took place the day following my meeting with the team, that is Ambassador Espat, the FS, the advisors from CitiGroup and our attorney Lee Buchheit. I had to be absolutely certain that what would be taken into that meeting with the bondholders would, in its broad outlines because all the details have not yet been presented but I had to be sure that what was being said represented an agreed position, a position that we had properly worked out. So that’s where I played my role. The meeting that took place the following day with the bondholders, we put up on the Central Bank website the contours of the thinking that informs the representations we made to the bondholders. There is expected to be another meeting before Christmas at which the actual detailed negotiations will commence and then, after the start of the new year, we are hoping that we can reach a point where, before we do a formal launch of our proposal, the discussions with the bondholders would have progressed to a point where basically we would be in agreement as to how should all come out. I will see how the next meeting goes and in terms of the final meeting or meetings in the new year, we are hopeful that we should have reached a point where we would be able to wrap this thing up certainly in time for the finalization of the budget here and before the next interest payment on the bond is due. So that’s what we are looking at, that’s what we are working on.”
Can Belize Make February Payment for Superbond? G.O.B. Won’t Say
On Friday, News Five spoke with Charles Blitzer, special advisor to the Belize Coordinating Committee. During that interview he disclosed that bondholders have pored over government’s recent postings on Central Bank’s website and that they are studying those figures carefully. While those online messages reflect poor economic conditions, there are serious concerns as to whether government will be able to meet the next tranche of interest payments due early next year.
“There’s a schedule for February 2017 for another payment towards the Super Bond. Is this the interest payment that you’re speaking of? Where do we stand with regards to that? Will the government be able to meet that payment?”
Prime Minister Dean Barrow
“That’s what I am saying, we are hoping, that is why we are pushing, we are hoping that by then we would have reached a point where we would have pretty much agreed on the restructuring and that would then overtake that payment. In other words, if there are new terms that payment would be subsumed within those new terms. It’s not a certainty that in fact we will conclude the negotiations by then but that is what we are aiming for, that is our objective.”
Government has acknowledged the date set for the February 2017 payment, but has gone no further in providing additional details.
Belize Gets Closer to Renegotiating Superbond 2038
The last we heard of the renegotiations of the Superbond 2038 was around Christmas time when Prime Minister Dean Barrow noted that another round of talks were due prior to the New Year. He also added that it is the hope of the Government that the bondholders would approve their proposal and that everything would take effect prior to the due date of the first payment in February.
We are yet to get an official statement from the Government but according to reports reaching our news centre, Belize has gotten more than the required seventy five percent approvals from the bondholders. The approval is only verbal thus far and will be reportedly penned in the coming days. In a letter dated today, January 6; sent to the Managing Director of the Bank of New York Mellon Corporation, which is the Trustee under Belize’s US Dollars Bond, it noted, quote, “the current expectation is that the Consent Solicitation will be launched next Thursday, January 12, 2017.
If Belize receives the consent of the holders of at least seventy five percent of the outstanding principal of the bonds, Belize would expect to sign the first supplemental indenture with the trustee in order to implement the amendments described in the Consent Solicitation Statement.” End of quote.
This letter was sent to the bank at the request of the Government of Belize since under the terms and conditions of the Superbond agreement, Belize must publish the debt sustainability analysis (DSA) and whether Belize has a “stand by agreement” with the International Monetary Fund. As we mentioned, we have been informed that Belize has gotten the required consent verbally from the bondholders.
Bondholders Approve Re-negotiations and Debt Restructuring for Belize
ON Monday we told you of a letter dated January 6 informing Belize’s bond trustees in New York of the appeal by Belize to restructure its Superbond 2038 due to unforeseen financial challenges experienced in 2016. Today, we can tell you that the bondholders have approved Belize’s request for renegotiations and a restructured national debt. According to Reuters News Agency, “The trustee of Belize’s so-called superbond has officially recognized a bondholder committee to hold talks with the government on the country’s third restructuring in a decade.
Funds including Greylock Capital Management and Grantham Mayo van Otterloo joined forces to form the committee, which was assembled last month to represent bondholders. Now trustee Bank of New York Mellon has formally approved the committee to negotiate with Belize, which says that its US$530m bond, issued in 2013, is unsustainable. The bond, which comes due in 2038, came out of the restructuring of a previous note that itself was the consolidation of other debt in a 2007 restructuring.
In a memorandum to BNY made public this week, Financial Secretary Joseph Waight said Belize intends to “imminently” seek the consent of bondholders to amend the terms of the notes. Waight cited “unforeseeable factors” facing the country since the 2038 bond was issued, including a drop in exports, economic contraction last year and damage from Hurricane Earl in August.
The committee said in a note released late on Monday that it looks forward to an “equitable and sustainable” agreement with the government. But the committee, which also includes Steadfast Insurance Company and Capital Markets Financial Services, wants fiscal reform alongside any potential debt relief for the country.
The committee has retained BroadSpan Capital as financial adviser, Blitzer Consulting as special adviser and Arnold & Porter Kaye Scholer as legal adviser. Belize has hired Citigroup as structuring adviser and Cleary Gottlieb Steen & Hamilton as legal counsel.
2 and a half months ago, we told you about the Barrow Administration's attempt to convince holders of the Superbond to restructure for a third time. Well, Government has now presented an offer to bondholders.
Principally, government wants to adjust the interest rate. That rate is currently 5% per annum, stepping up to 6.77%, starting August 20 of this year. The Government of Belize wants to amend that by fixing it at 4% per annum starting with the next payment, which is due in a month.
To make the offer more attractive, Belize is also offering to pay holders a consent fee of 0.25% of the face value of the bond. This consent solicitation, which is simply an invitation to discuss, closes in two weeks, on January 26, 2017.
Financial Secretary Joe Waight says that Belize is not asking for any reduction in the principal, and neither is the country proposing to extend the final maturity date of the Bonds. "The proposed amendments," Waight said, "will only adjust the amortization schedule of the Bonds within its existing maturity profile and effect a modest reduction to the interest rate."
Belize has launched a consent solicitation in an effort to amend the amortization schedule and lower coupon payments on its 2038 bond.
The Central American country wants to cut the interest rate on its so-called superbond to 4% per annum starting February 20 until maturity.
The bond currently pays 5% annually, with a step up to 6.767% starting August 20.
It also wants to adjust timing of principal payments from the current 38 semi-annual installments starting in 2019 to three equal amortizations on February 20 of 2036, 2037 and 2038.
"The two amendments ... are, we believe, the mildest adjustments to the terms of the bonds that will still achieve the objective of putting the bonds on a fully sustainable basis," Belize Finance Secretary Joseph Waight.
In return, the sovereign is offering holders a consent fee of 0.25% of the face value. The consent solicitation expires on January 26. Citigroup is acting as agent on the transaction.
The announcement comes just days after the trustee of the bond officially recognized a bondholder committee to hold talks with the government on Belize's third restructuring in a decade.
Funds including Greylock Capital Management and Grantham Mayo van Otterloo joined forces to form the committee, which was assembled last month to represent bondholders.
Trustee Bank of New York Mellon formally approved the committee to negotiate with Belize, which says that its US$530m bond, issued in 2013, is unsustainable.
The bond, which comes due in 2038, came out of the restructuring of a previous note that itself was the consolidation of other debt in a 2007 restructuring. (Reporting by Paul Kilby; Editing by Marc Carnegie)
Here's a blow to Belize which has made a direct hit. It came this morning from New York and Boston where the committee representing holders of the Superbond rejected the offer made by Belize 5 days ago. As we told you that offer was to cut the interest rate on the Superbond from 6.75% to 4%, and to soften the bullet payments by deferring principal payments.
Well, a release from the Committee today says, quote, "its members have reviewed and decided to decline the consent solicitation...launched by the Government of Belize on January 12, 2017."
It goes unto say "the proposed amendments to the terms and conditions of the Bonds...would crystalize a further reduction in the net present value of the Bonds in excess of 40%, in addition to a cumulative reduction of more than 50% already provided by bondholders in restructurings of predecessor instruments to the Bonds in 2007 and 2013." End quote.
Because of this "The members of the Committee view the Consent Solicitation as premature…it will not be completed without the consent of members of the Committee, who will not provide such consent at this time… The Committee also recommends that all bondholders decline to give their consent to the terms of the Consent Solicitation at this time." So…no consent…means no deal. And we spoke with the spokesperson for the bondholders today. He is Charles Blitzer in Washington DC. Here's how he put it:...
Charles Blitzer, Bondholder Committee SPOKESPERSON "What's being asked is a reduction in the value of the bonds compared with the value of the current bonds"
"It is unprecedented for a country to attempt to restructure the same debts three times in less than 10 years, and the committee believes that this should the final time, and what's required is a strong credible programme, which we haven't yet seen all of the necessary evidence that this would be the last time."
"But we're looking for a government programme that is strong enough and credible enough to have confidence in that the bonds won't have to be re-structured again in a few years."
"We want to be part of the solution, but we can't be the solution."
Jules Vasquez, 7News "The offer from the government of Belize will close on the 26th, I believe. Do you expect the bondholder group to be meeting with the government?"
Charles Blitzer, Bondholder Committee SPOKESPERSON "What happens next I wouldn't put a particular day, deadlines on that. I hope that we and the government can make progress as rapidly as possible, but we can't impose any particular deadlines on these things."
Jules Vasquez, 7News "Well, we have a month until the next payment."
Charles Blitzer, Bondholder Committee SPOKESPERSON "The next payment is already budgeted, it's in the existing budget which has been approved."
Jules Vasquez, 7News "They haven't paid before. They didn't pay in August of 2013, was it? Or they made a half payment, I believe."
Charles Blitzer, Bondholder Committee SPOKESPERSON "The money is budgeted, let me leave it at that."
The release also states, quote, "the Committee's preliminary conclusion is that the proposed adjustment program is unlikely to reduce future risks to debt sustainability or to the stability of the country's currency peg in a sufficient manner. As such, the Committee urges the GOB to seek technical assistance in further developing a comprehensive home-grown adjustment program that can ultimately be endorsed by Belize's multilateral partners." End quote.
Today in Orange Walk, the leader of the opposition told CETV-3 News that he isn't surprised at this turn of events:..
Hon. John Briceno, Leader of the Opposition "We are not surprised that this was rejected outright by the bondholders. We knew that was going to happen because the UDP has a poor track record when it comes to keeping up with its commitments. Now, if you are bondholder and they - I've already come and tell you I can't pay, so we need to restructure. and then you restructure in good faith and then you come back again in just 3-4 years later and say I can't pay you again, so I want to restructure. Nobody is going to take you serious and that is the problem that we are finding with the government's strategy in trying to reorganized or restructure the UDP super bond."
Briceno also discussed the possibility of a GOB default - or partial default. The next Superbond payment is due in February, and in previous negotiations the Government has with-held payment as a negotiating tactic. Briceno warned against that:...
Hon. John Briceno, Leader of the Opposition "I am very concerned that the UDP will try to play "chicken" to see who blink first; we or the bondholders. Because if we were to default there would be an immediate increase into what we owe the bondholders. It is going to go up about 11% more."
"We have to ensure that we don't default. We have to ensure that the government comes up with a credible plan."
The next payment is due on February 20. As for government, they have not issued a release or statement, but, the conventional wisdom is that this sort of back and forth, rejection leading to compromise is standard part of negotiation, especially when bondholders are being asked to give up 40% of their Net Present Value.
Barnett Says Bondholders Rejection Is Par For The Course
Last night in the news, we told you how the Committee representing Belize's bondholders rejected the terms of the Government's first offer to restructure the Superbond a third time.
The Bondholders are not interested in the consent solicitation offer because they say that the current proposed deal would, quote, "crystalize a further reduction in the net present value of the Bonds in excess of 40%, in addition to a cumulative reduction of more than 50% already provided by bondholders in restructurings of predecessor instruments to the Bonds in 2007 and 2013." End quote
We heard from the Committee spokesperson and the Leader of the Opposition, but how does the Government view this response? Well, that's what we asked Dr. Carla Barnett, the Minister of State in the Ministry of Finance. She told us that in this type of negotiations, the refusal of the first offer is to be expected:
Hon. Dr. Carla Barnett - Minister of State, Finance "Let me just say it is hardly the case that a first offer is accepted. Clearly there's going to be ongoing conversation and then we'll see how we can reach some sort of resolution."
Daniel Ortiz "Is it ever a situation or is there any concern that maybe the bondholders will stick to getting the government to keep these 2038 bonds?"
Hon. Dr. Carla Barnett "I wouldn't say so the conversation has already begun that is why they ended up at the table so there is a conversation that's on going and you would understand this. If you're negotiating a deal you don't - the first offer is the first offer, you counter offer and you say what else you need in terms of information and then the discussion continues. So we're looking forward to the next step."
Daniel Ortiz "So you're expecting a counter offer sometime soon or government expecting a counter offer?"
Hon. Dr. Carla Barnett "I don't know that government is expecting a counter offer, I think what the press release that we all saw yesterday said was they were asking for some more information which I'm not involved in the day to day negotiating process but I know that those questions are being answered and we'll take it from there."
Daniel Ortiz "Do you know if there is any sort of threshold that the government? Okay so this is a first offer, is there any threshold which the government maybe considering okay we have it as a peg at this. We go with this first offer but we can't go any higher than this or lower than this."
Hon. Dr. Carla Barnett "I wouldn't want to hazard that; I would only say that the negotiations continue."
Daniel Ortiz "Is it a consideration that the government or the ministry you form a part of is considering that the bond holders will expect the Belizeans and the taxpayers to share some of the pain if there must be some sort of relief given?"
Hon. Dr. Carla Barnett "Relief to?"
Daniel Ortiz "In terms of this restructuring effort?"
Hon. Dr. Carla Barnett "I think what we all want is a situation as I said where we are seen to be putting ourselves on a path of stability and on a path of growth. We've seen growth come down, we have to fix that, we have to get the economy moving again we've begun to see good changes but we need to build on that and we need as well to show when we do our budget that we are looking to reduce our fiscal deficit."
Reporter "Do we have a contingency for the February payment in interest that we know is coming up?"
Hon. Dr. Carla Barnett "I wouldn't want to answer that at all because we are in the conversation with the bondholders."
The government's offer expires in 8 days – and talks are expected to continue up until that time.
In a statement issued today, bondholders announced that they have rejected the offer released by the Government of Belize last week to holders of its 2038 billion-dollar bond, in which the Government proposed a reduction in interest rates and a delay in amortization payments due to economic exigencies.
The committee has also indicated that it is not convinced that the partial fiscal adjustment measures announced by the Government of Belize will avert future problems and reduce the risk of yet another debt restructuring exercise down the road.
The bondholder committee is composed of Greylock Capital Management, LLC; Grantham, Mayo, van Otterloo & Co. LLC; Steadfast Insurance Company and Capital Markets Financial Services Inc. The committee has additionally retained BroadSpan Capital LLC as financial advisor, Blitzer Consulting as special advisor, and Arnold & Porter Kaye Scholer LLP as legal advisor.
The statement issued by a committee representing bondholders said that, “…its members have reviewed and decided to decline the consent solicitation (the ‘consent solicitation’) launched by the Government of Belize (the ‘GOB’) on January 12, 2017.”
It added that, “If approved, the proposed amendments to the terms and conditions of the bonds contemplated by the consent solicitation would crystalize a further reduction in the net present value of the bonds in excess of 40%, in addition to a cumulative reduction of more than 50% already provided by bondholders in restructurings of predecessor instruments to the bonds in 2007 and 2013.”
The committee representing bondholders says that Belize’s consent solicitation—which requires valid consent to be provided by holders of at least 75% of the bonds—is premature, and no consent will be granted at this time, it added.
The next payment on the super bond is due in just about a month. Despite the impasse, the Government of Belize is hoping that a deal can be struck with bondholders by then.
The Government of Belize had sought “the consent of holders of the bonds to amend this amortization schedule with the effect that the 2038 bonds will amortize in three equal, annual installments on February 20th of 2036, 2037 and 2038.” As the arrangement currently stands, the 2038 bonds amortize in 38 equal, semi-annual installments commencing on August 20, 2019 and ending on February 20, 2038.
The Government also sought “the consent of holders to fix the interest rate at 4% per annum commencing February 20, 2017 through the final maturity of the 2038 bonds.”
The current interest rate of 5% steps up to 6.767% per annum when the August 20, 2017, payment is due.
The Government’s offer also proposed to pay bondholders a consent fee of 0.25% of the face amount of the 2038 bonds if the amendments become effective.
The committee contends that “…any potential debt relief must be part of a medium-term solution for Belize, requiring as well (i) a strong and credible medium-term program of fiscal and structural adjustment to promote economic growth and reduce crisis risk, and (ii) reasonable mechanisms to assure that the adjustment program will be delivered.”
It added that, “While the GOB has made public a partial outline of a proposed economic adjustment program, it has not yet provided the details required to fully evaluate the program and its sustainability. However, based on the publicly available information, the Committee’s preliminary conclusion is that the proposed adjustment program is unlikely to reduce future risks to debt sustainability or to the stability of the country’s currency peg in a sufficient manner.”
It urged the Government of Belize “to seek technical assistance in further developing a comprehensive home-grown adjustment program that can ultimately be endorsed by Belize’s multilateral partners.”
In a memorandum to a trustee of bondholders earlier this month (specifically addressed to the Bank of New York Mellon), the Government of Belize, via Financial Secretary Joseph Waight, said that in the face of these unusual macroeconomic, fiscal and public debt exigencies, the Government of Belize has undertaken an aggressive program of fiscal consolidation and collaboration with its social partners with a view to achieving economic recovery and fiscal and public debt sustainability.
Waight said that in this fiscal year, tax increases of 1.5% of GDP (hikes which came in the form of higher fuel taxes) have been enacted with a further 3% of GDP in adjustments planned for FY 2017/18.
He did not elaborate on how the tax revenue would be increased.
Business Sectors Says Bondholders Have No Incentive To Renegotiate
Senator Lizarraga also expressed little or no confidence in the will of bondholders to agree to restructure the Superbond for a third time. As we've reported, the bondholders committee rejected government's offer to reduce the interest rate to 4% and defer principal payments until the year 2036. The business senator says they bondholders have no incentive to take the deal:...
Hon. Mark Lizarraga, Business Senator "We are still questioning what motivation the bondholders have to renegotiate. Why would they want to renegotiate really? Unless it was for a better deal for them. So, we will watch this very closely, and, of course, hoping that the government can achieve some cash flow reprieve, but as well some significant savings. And we really don't see the bondholders motivated to move in that direction, really. Their motivation is that it's trading at 42 cents on the dollar. 40 cents. 40 cents on the dollar, soh obviously the market knows you're holding something close to junk.
"The thing is that we have not kept our word, have we? I mean, we've had to renegotiate several times, we've said that the cash flow savings we would receive would be put to good use and it hasn't. so the bondholders are saying now, what credibility do you have really - you have to come to me with some sort of medium term strategy."
Government's offer to bondholders remains open until next week Thursday - and there is expected to be some negotiation during that time.
Re-negotiation of the Belize 2038 Bonds or Superbond has bogged down some, following the summary rejection of the Government’s consent solicitation by bondholders last week. The Government is now seeking to respond to the bondholders’ dictates with regard to avoiding further credit risk and strengthening Belize’s economy – with a possible dose of medicine from the International Monetary Fund. Belize’s chief representative of the business community, the Belize Chamber of Commerce and Industry, appear willing to let them get on with it. Their primary concern at this time, according to President Nikita Usher, is the greater local picture as encapsulated in the upcoming General Revenue and Appropriations Bill, also known as “The Budget.”
Nikita Usher, President, Belize Chamber of Commerce and Industry
“The Government’s response is that that is just the start of negotiations; the business community is more interested in seeing what will be the Budget presentation for this year, which has to encompass what will be the Superbond; the Superbond is only one element of the Budget. I don’t want to comment on where the Government is going to head; threes still negotiations taking place there. Our biggest concern, however, is what is going to be our national Budget for 2016, 2017. And the Chamber has put together a comprehensive review of what we feel, or where we feel there can be some changes on the part of Government, and we are now making arrangements with Government in order to discuss them further.”
And in other big news from Belmopan, the government has extended its offer to bondholders. As we told you, that offer - known as a consent solicitation - is to bring the interest rate down to a uniform 4% from 6.7%, and to defer the principal payments to the years 2036, 2037, and 2039. The deadline for bondholders to accept it was today at 5:00 pm New York Time. Well, right around that time, we saw this release on the government website.
It says, quote, "The Government of Belize today extended the period during which holders of Belize's U.S. Dollar Bonds due 2038 may respond to the Government's January 12, 2017 Consent Solicitation Statement….The offer will now remain open until 5:00 pm (New York time) on Friday, February 3, 2017." End quote.
So that's basically a one-week extension. It suggests that either the bondholders aren't biting on government's offer, or that they are only nibbling at it. But the release stresses, quote, "Belize has proposed no other amendments to the terms of the 2038 Bonds. In particular, Belize has not proposed any reduction in the principal amount due under the instruments nor has it asked for an extension of the final maturity date of the Bonds." End quote.
So while the bondholders have officially declined the offer last week, government is also holding to its guns - and so basically, right now, it's seems to be a test to see who blinks first.
PM Indicates Room For Negotiation With Bondholders
As we told you last night, the government of Belize has extended the deadline on its consent solicitation offer from yesterday, January 26th to next Friday February third.
While extending the deadline suggests that the bondholders aren't biting, we note that government hasn't changed what it's offering, suggesting that they may have a stronger hand than they care to show at this time. Today, the Prime Minister suggested as much:...
Rt. Hon. Dean Barrow, Prime Minister "That came about, because without saying too much, we certainly have come away with the impression that there is a willingness on the part of the bondholders, the creditor committee and their advisors to discuss matters. I don't want to put it any higher than that. I don't want to misrepresent them. But it's not that we just took it into our heads that this thing ought to be extended. We are extending for what we feel is good and sufficient caused."
The deadline is now next week Friday at 5:00 pm Eastern, two weeks before the next Superbond payment is due.