Barbados negotiates debt reduction with foreign creditors

Prime Minister Mia Mottley of Barbados has now concluded negotiations with creditors which resulted in a 26.3 per cent cut on the aggregate sum of the original principal and 14 months worth of past due and accrued interest as of October 1, 2019 as reported by Latin Finance. The Barbados creditors included but not are limited to Eaton Vance Management, Greylock Capital Management, Teachers Advisors, and Guyana Bank for Trade and Industry

Prime Minister of Barbados Mia Mottley

 As previously reported by Bloomberg, talks with foreign creditors have dragged on since last June, when Mottley said she would restructure the island’s “unsustainably high” debt burden. While both sides said they are open to continued negotiation, they appear far from consensus.

  The May 2019 article by Bloomberg indicated that just before summer of this year the government estimated debt had ballooned to about 175 per cent of gross domestic product, meaning it owed around $9 billion. That would have made it one of the world’s most-indebted countries, trailing only a handful of others, including Greece, according to International Monetary Fund figures.

Bridgetown, Barbados.

  Mottley told Bloomberg that she “will not compromise” on the goal of bringing that ratio down to 60 per by 2033. Mottley inherited a troubled $5 billion economy when she took office last May. The island known for its white sand beaches had been struggling for years amid competition from less-pricey Caribbean tourism destinations, crumbling infrastructure, and a currency that’s pegged to the U.S. dollar. She quickly struck a $290 million deal with the IMF and restructured about $6 billion in local currency debt.

Latin Finance is reporting that Barbados will issue new bonds of at least $500 million that mature in 2029 and carry a 6.5 per cent coupon.

“The bonds have been structured with eligibility for J.P. Morgan Emerging Market Bond Index (EMBI) inclusion in mind,” the statement said. The new bond will have a five-year grace period. Creditors will receive an upfront cash payment of $7.5 million at the closing to those participating in the exchange offer. In addition, bondholders will get $32.5 million paid out in the form of Past Due Interest (PDI) bonds with a fixed annual coupon of 6.5 per cent. These PDI bonds will amortize $30 million in October 2020 and have a final maturity in February 2021.

The balance of the restructuring will be capitalised by the new bonds maturing in ten years.

The new bond will be exchanged for the defaulted dollar denominated debt, which includes the 7.80 per cent 2019’s, the 7.25 per cent 2021’s, the 7 per cent 2022’s, the 6.625 per cent 2035’s as well as a floating-rate loan that was due for payout in 2019.

The new bonds will have a five-year grace period on repayments of original principal, with semi-annual principal amortizations starting in April 2025 through the remaining term of the bonds.

The debt restructuring agreement includes a natural disaster clause, that “will enable the government to capitalise interest and defer principle maturities due on the new bonds for two years” in the event it is affected by natural disasters that would be covered by its catastrophe risk insurance policy.