Belize’s bondholders have formed a creditors committee out of concern that the Central American country will become the next sovereign to default on its debts.

The ad hoc committee, representing holders of more than $200m of the $547m bond due in 2029, said it had been formed after the government indicated it could “amend certain terms” of the bond.

The bond has been trading at a subdued price for some time, as investors have widely expected a debt restructuring. Moody’s [MCO 35.225 -0.085 (-0.24%) ] this month cut Belize’s credit rating for a second time this year, down to Ca, citing a likely restructuring and the country’s weak economic growth.

The bond was approved in 2007 in an effort to consolidate the country’s debt, which totals about $1bn, more than 70 per cent of Belize’s $1.4bn gross domestic product , according to the central bank.

“While we are sympathetic to the challenges facing Belize, any proposed amendment that results in a net present value or principal loss to creditors would not, based on the committee’s current understanding of the situation in Belize, be considered acceptable or, for that matter, necessary,” said AJ Mediratta, a partner at Greylock Capital Management

Greylock Capital was one of the hedge funds that sat on Greece’s creditors committee this year.

Belize’s creditors committee is advised by BroadSpan Capital, a Latin America-focused investment banking boutique that also advised international creditors to Saint Kitts and Nevis, the Caribbean island federation, in debt restructuring this year.

Dean Barrow, Belize’s prime minister, said last week that the government’s debt restructuring team had met officials from the International Monetary Fund and the Inter-American Development Bank and feedback had been positive.

“In the case of the IDB, we’re also asking them to partially guarantee the restructured bonds and those conversations, as I understand it, went well, very well indeed,” he told reporters, according to Reuters.

“It’s important to get the IDB and the IMF on board, number one, so that the figures we put out to the bondholders can be certified as being real and legitimate.”

CNBC

Comment from a friend....

If the so called Belize creditors committee owns more than 25% percent of the bond then they can call the shots because the collective action clause (CAC) of the superbond requires the consent of 75% or more of the bondholders.

Belize’s debt restructuring could trigger credit-default swaps that insure our bonds . We would have defaulted on a default...

Another comment:

The ultimate problem is that Guatemala is not a sure loser.

A history of Belize external debt 1995-2010

Bondholders don’t want to lose in restructured Superbond

Should the government prepare for a head on collision with holders of the Superbond? On Wednesday, Prime Minister Dean Barrow updated the nation on the national budget to be presented on June twenty-ninth in the House and on the progress of negotiations to restructure the Superbond. He told the media in his first press conference since his re-election that the Superbond team will impress upon bond holders that Belize can’t meet payments.

Dean Barrow

“I would expect that we will have a press conference with the debt restructuring negotiating team as soon as we are able to give the sort of details that I know you will want to inquire into. But for now, where we are, is that the draft narrative, the draft case, for debt relief has been prepared by the team. In other words, what we have to do is to make coherent and compelling argument to say to the bondholders that we absolutely can’t pay; we will not pay because we can’t pay. And that case is made by advancing the numbers, the facts, the data; analyzing those data and facts and numbers. I have had a look at it, I have indicated to the team leader that I am happy with it and that is what is going to be set to the bondholders; and shortly thereafter, we will begin the actual face to face negotiating process with as many of the bondholders as we can physically interact with. There are some small bondholders that we will perhaps will not be able to deal with face-to-face; the engagement and the discussion will be by way of emails and other types of correspondence. But with significant number of creditors, we expect the face-to-face engagement process to begin shortly. I am certain that within a week or two we will be able to give you an actual date.”

But the holders of the Superbond are not sitting back waiting to be told anything. They are doing their own preparations and it is likely they will have a message for the negotiating team. This is according to an article in today’s issue of the prestigious Financial Times. The article entitled; “Concerns over Belize Debt” puts a huge question mark over whether there will be a positive end to the restructuring of the five hundred million dollar Superbond. Essentially, it says that bondholders have formed a creditors committee out of concern that Belize will become the next country to default on its debts. The ad hoc committee, representing holders of more than two hundred million dollars of the bond due in 2029, was formed after the government indicated it could “amend certain terms” of the bond. The report quotes AJ Mediratta, a partner at Greylock Capital Management who is also the Chair of the creditors committee as follows: “While we are sympathetic to the challenges facing Belize, any proposed amendment that results in a net present value or principal loss to creditors would not, based on the committee’s current understanding of the situation in Belize, be considered acceptable or, for that matter, necessary.” The Financial Times also reports that the bond has been trading at a subdued rate in anticipation of a debt restructuring. A full text of the article can be seen at channel5belize.com.

Channel 5

It turns out that the Belize creditors committee holds more than 40% of the "super bond" so they will be calling the shots bc of the the collective action clause (CAC) of the superbond . They are pushing for some serious austerity measures over the short and medium term . Task number 1 is to take a look at Belize pension system and direct foreign investment.

World’s Highest Yields Signal Buy Belize Bonds to TCW

Belize’s vow to restructure more than $500 million of dollar debt for the second time in five years has stoked the biggest bond decline in emerging markets. TCW Group Inc. is betting the rout has gone too far.

The yield on the Central American country’s $544 million of notes due in 2029 has surged 235 basis points to 19.4 percent since Jan. 31, when Prime Minister Dean Barrow said he would restructure the securities, without giving more details. The yields have climbed 872 basis points from a year ago and are the highest among 50 nations tracked by JPMorgan Chase & Co.’s EMBIG index. Notes sold by Argentina and Pakistan yield 12.6 percent and 11.8 percent, respectively.

Barrow said he would pursue more lenient terms for the government after the interest rate on the notes rose to 8.5 percent this year from 6 percent as part of an accord reached with bondholders in 2007. TCW says investors are overestimating the losses the country will seek to impose in any new agreement.

“What I think is likely is that they will propose a return to lower coupons and perhaps some maturity extension,” said Marcela Meirelles, a Latin America strategist in Los Angeles for TCW, which oversees $128 billion of assets and bought Belize bonds after the sell-off. “They can engineer a situation in which the debt service is once again manageable.”

RATING CUT

Moody’s Investors Service cut Belize’s credit rating for a second time this year on June 1 to Ca, 10 levels below investment grade, citing weak growth in the $1.4 billion tourism-based economy. Moody’s first cut the rating in February, prompting Barrow to say he “doesn’t give a damn” about ratings companies.

AJ Mediratta, a partner at Greylock Capital Management, is leading a group of investors holding about $300 million in Belize bonds that is seeking to negotiate with the government. He said any proposal shouldn’t result in losses, as measured by net present value calculations, because the country’s debt levels are “stable.”

“We know Belize has challenges like many countries and what we’d like to see is a good-faith process,” Mediratta said in a June 19 interview from New York. “If Belize can restructure in a pragmatic and open way that is friendly to investors and preserves access to the markets, it should only be a benefit for them.”

Finance Secretary Joseph Waight declined to comment on the restructuring and messages left for officials at the central bank and presidential palace by Bloomberg News weren’t returned. Mark Espat, who heads the government team assembled in March to consider a restructuring, also declined to comment.

‘POLITICAL PRESSURE’

TCW’s bet may be paying off. Belize’s 2029 bonds have returned about 15 percent since February, compared with 1.6 percent for Latin American debt, according to JPMorgan indexes and data collected by Bloomberg.

The yield on the bonds fell 67 basis points, the most in a month, to 18.68 percent at 8:50 a.m. New York time.

Roberto Sánchez-Dahl, who oversees $1.3 billion of emerging-market debt at Federated Investment Management Co., said he sold his Belize debt after the election-season comments because a lack of information led him to prepare for the worst.

“We decided there was not that much upside from there, given the very large political pressure for them to do something about it,” Sánchez-Dahl said in a telephone interview from Pittsburgh. “It looked like it could turn into a very complicated situation there, and under the current market environment, we just didn’t want to have any loose cannons there.”

GROWTH FORECAST

The International Monetary Fund forecasts Belize’s economy will expand 2.8 percent this year after growing 2 percent in 2011, compared with 4 percent growth for the entire Central America region. About 35 percent of the country’s population lived in a dwelling without a flush toilet or refrigerator, according to a 2010 census.

The restructuring is Belize’s latest effort to control debt-servicing costs. The Central American country consolidated its debt into a so-called Super Bond in 2007 following higher spending related to tropical storms and hurricanes over the previous decade. At the time, the government said its recovery from storms left it with “heavy external debt obligations.”

‘DEAL BREAKER’

In 2007, Belize was spending a quarter of its revenue on interest payments. Public debt outlays equaled 13.6 percent of revenue from April 2011 to March 2012, according to the Central Bank. The jump in the Super Bond’s coupon ahead of the elections probably made continued payments a “deal breaker” for the government, said Franco Uccelli, senior economist for Central America and the Caribbean at JPMorgan in Miami.

Belize, which is wedged between Mexico and Guatemala on the Yucatán Peninsula, could expect yields on restructured debt to fall as low as 10 percent, Uccelli said. The country cut its debt-to-GDP ratio to about 84 percent last year from 100 percent in 2005, he said.

“They got a big relief in terms of their debt service burden” in the earlier debt restructuring, Meirelles said. “They don’t need a big haircut.”

Bloomberg.com


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We can’t pay, GOB tells creditors

The Government of Belize is in a two-billion-dollar debt predication—that is according to the report, Belize 2012 – Economic and Financial Update, released on the website of the Central Bank of Belize today, Wednesday, June 20.

“The Government’s latest projections indicate that the country is facing sizeable financing gaps from 2013 onwards; the authorities are in active discussions with multilateral partners, but it is clear that multilateral funds alone will not close these expected shortfalls,” said the report.

The debt review had been commissioned by Prime Minister and Minister of Finance Dean Barrow soon after his return to office in March, when he put together a team led by former Minister of Economic Development Mark Espat, to undertake a comprehensive debt review—a review which now makes the point that the country cannot afford its existing debts, and it is now trying to find a sustainable way forward.

The document sets out a profile of exactly what Belize owes, and the debts include nearly half-a-billion dollars ($456.5 million) to the Michael Ashcroft group. Estimated compensation to the former owners of the Belize Telemedia Limited and the Belize Electricity Limited are together estimated at BZ$540 million.

The gloomy news is about the proceeds of oil exploration, which the report said peaked in 2009, and continues to decline with no immediate prospect of a boost in revenues. The report makes the point that, “...no new commercially-viable oil finds have been made in Belize since 2005 – contrary to the hopes of Belize and its creditors at the time of the 2007 restructuring.”

On top of the expected claims for BTL and BEL, Government has listed $47 million in debts to NEWCO, a $4 million arbitration award won over an airport concession cancelled under the Musa administration, as well as $43 million for land claims.

There is BZ$116.5 million in awards to the Ashcroft group, which the Barrow administration continues to resist. They are (1) the 2009 London Court of International Arbitration (LCIA) award for BZ$43.8 million (plus accrued interest) for BCB Holdings and the Belize Bank; (2) BZ$33.5 million (plus accrued interest) for the Belize Bank; and (3) a 2009 LCIA arbitration award for BZ$39.2 million (plus accrued interest), which has been assigned by the former BTL shareholders to the Belize Social Development Ltd (BSDL).

Belize’s overall direct public debt is listed at US$1.182 billion, with US$554 million of that being external commercial debt, essentially the super bond. This is the portion that the Barrow administration is now attempting to renegotiate.

“Belize is now moving to address its additional liabilities and determine appropriate strategies for dealing with the forecast collapse in oil revenue; this notwithstanding, overall obligations look certain to exceed the country’s capacity to pay, even when conservative assumptions are used,” said the report.

We understand that with the conclusion of the review, the Government team will next move into negotiations with creditors and bondholders who had subscribed to the super bond, through which the national commercial debt was largely restructured back in 2007.

Among those who the government would engage is the Committee of Creditors, recently formed by a group of foreign bondholders to protect their interests in the negotiations.

According to the debt review, the critical year seems to be 2013, when the budget deficit would record huge and unsustainable spreads of nearly 8%.

“The Government is facing sizeable financing gaps from 2013 onwards; using the Mid-Point for the nationalization compensation amounts that the Government must pay, these gaps reach 8.0% of GDP in 2014 and decline gradually to reach 7.3% of GDP in 2017,” said the report.

Amandala

1st round of negotiations of Superbond with bondholders to be held next week

On the financial front, Prime Minister Dean Barrow, will be presenting the national budget to the House of Representatives this Friday. The PM says we can expect an austerity budget; there is already a thirty million dollar deficit from oil revenue shortfalls. According to a report by Reuters news agency, the government has set aside cash to make the next interest payment on the five hundred and fifty US million dollar ‘super bond’ if officials fail to reach a restructuring deal with creditors before the August deadline. The first round of negotiations with bond holders takes place next week in Caracas, Venezuela, says the news agency. The August payment is worth twenty-three point five million dollars which represents an increase in interest from six to eight point five percent. The report quotes Finance Ministry Budget Director Artemio Osorio as saying, “We are making provisions to pay the entire amount in August. If there are any negotiations before August that cause the interest to fall, then that would be considered savings, but we are making provisions to meet the full payment in August.” Alternatively if there is no deal before the August deadline, the super bond team officials will attempt to re-structure again before further payments are due, Osorio told Reuters.

Channel 7

What to do with the Belize superbond

The fact that the current superbond trades at such depressed levels suggests that, at least theoretically, there is room for mutually beneficial gains for both bondholders and the government.

Options:

1. Considering the low prices of the superbonds, Central Bank can use its reserves, which were around 4 months of imports at the end of 2011, in order to secretly repurchase 8.5% notes at 50 cents on the dollar and then refinanced the amount with a multilateral at an interest rate of perhaps 3%.(insert Vice President Joe Biden comment about Obamacare here )


2. Elimination of the bond amortization which is supposed to start in 2019 would create a win-win situation Since Belize would have difficulty making such amortization payments anyway.


3.The GOB could sell "carbon stocks" to foreign governments of industrialized countries wishing to comply with international efforts to reduce emissions of greenhouse gases
from deforestation and forest degradation (known as REDD or REDD+). As an example, Norway’s $1 billion USD REDD+ investment in Indonesia.

4. The alternative approach would be to follow Ecuador’s example and default on moral grounds and attacked the legitimacy of the debt.

Notes:
Why Belize "Creditors Committee" who owns over $300m of the $547m bond wants all investors to be treated equally.

1. Reconciliation between Prime Minister Barrow and Lord Michael Ashcroft is
notable because Ashcroft used to be a significant holder of Belize debt when holdings were made public during the 2007 exchange; wonder if Ashcroft continues to hold large amounts of debt and if he is one of the bondholders with whom the government wants to negotiate.

2 notices were sent through Clearstream to bondholders asking them to voluntarily reveal their identities to the government of Belize in late April

Belize Budget Spurs Talk of Debt Relief, Not Default

(Reuters) - The Belize prime minister said on Friday that a federal deficit leaves the government more likely to seek debt relief but he did not raise the threat of default.

Prime Minister Dean Barrow said that expenditures - which include an 8.5 percent interest payment on a $550 million 'super bond' - will exceed the roughly $450 million in expected government revenue.

That kind of imbalance has prompted creditors to join together to try and stop the government from balking on the loan that has a $23.5 million payment due August.

Moody's pushed Belize's credit rating further into junk status early this month, pointing to falling oil-related revenues and rising liabilities following the nationalization of local phone and telephone utilities.

And while Barrow has citing those same woes to say the nation of roughly 313,000 has reached a "fiscal cliff," he boasted on Friday that the country is now on a relatively stable footing.

"I call it a matter of great pride to report that Belize has been and is doing well economically," he said at a press event to discuss a 2012/2013 budget that is expected to clock a fiscal deficit of 2.5 percent of gross domestic product, up from the 1.1 percent of GDP in the previous fiscal cycle.

"There are all these factors making it impossible for us to repay under the terms contracted by those that got us into this mess," Barrow said.

Still, Barrow stopped short of threatening to stop payments on the loan or an outright default.

Financial officials have begun talks with creditors to renegotiate the terms of the bond and earlier this month Barrow said the International Monetary Fund and the Inter-American Development Bank were open to talk of restructuring.

The budget proposal will be presented to congress for debate on July 11.

SOURCE