BELIZE has struck an agreement with a group of bondholders to buy back its debt at a discount. It will purchase, redeem and cancel all outstanding dollar bonds, according to the Ministry of Finance and a bondholder group, under a debt swap with The Nature Conservancy (TNC) .
The new deal relates to Belize’s US-dollar bonds due 2034. Bloomberg indicates that Belize has about US$530 million of its so-called super-bond outstanding. The deadline for Belize to settle the offer will be 19 November 2021, which is intended to provide time for the parties to finalise the documentation and consummate blue bond financing. In essence, debt-for-nature swaps provide a means by which nature conservation is targeted in exchange for forgiving or cancelling a portion of a developing country’s debt.
In exchange for debt cancellation, the Government endows a trust fund in local currency for conservation activities. Previously, in May of this year, the Government of Belize made a “consent solicitation” to the holders of Belize’s super-bond for an extension of the grace period for the May 20, 2021 coupon payment, due on May 19 2021. The Government asked for an extension until September 19, 2021 — the end of the grace period for the next scheduled coupon payment, which is due in August 2021.
The Ministry of Finance, in its communications, indicated that the country was not in a position to make the US$7-million payment and anticipated a “soft default” since the negotiations were expected to go well beyond the date set for the coupon payment. In early September the Government of Belize announced its commitment to using money provided by The Nature Conservancy’s blue bond financing programme, which will use private capital to help refinance nations’ public debts.
Belize reached agreement in principle on financing with TNC and with Credit Suisse Group AG and/or its affiliated entities, which is arranging the blue bonds financing. The US International Development Finance Corporation is expected to provide political risk insurance in connection with the blue bonds financing. The parties are working to finalise the definitive documents and consummate the financing.
The key features of the agreement include the offer to eligible holders, who tender their bonds prior to the expiration date of the offer, of a cash payment in an amount equal to US$550 per US$1,000 of the outstanding principal of the bonds as of September 1, 2021. The agreement also proposes redemption of non-tendered bonds, subject to consent from eligible holders of more than 75 per cent of the aggregate principal amount outstanding of the bonds.
Bonds held by eligible holders who do not tender prior to the expiration date of the offer will be redeemed in cash on the date of settlement, with a cash payment equal to US$517 per $1,000 of the outstanding principal of the bonds as of September 1, 2021, and will not receive an agreed accrued interest payment. Under the programme, Belize is expected to put in place “durable marine conservation efforts and sustainable, marine-based economic activity”, and will also fund a US$23.4-million endowment to support future marine conservation projects.
If Belize’s offer is fully approved the deal will be activated on the settlement date of November 19, the Government outlined.
In the Government release on the proposed deal, members of the bondholder committee; Aberdeen Standard Investments; Grantham, Mayo, van Otterloo & Co. LLC; and Greylock Capital Management, LLC were quoted as saying that they welcomed “the environmental and marine conservation features of the proposed transaction with The Nature Conservancy (TNC), which is in line with their support for, and continuous development of, innovative ESG [environmental, social and governance] financing techniques” .
They added, “The committee members and their advisor engaged closely with key local and international stakeholders while collaborating with the process that has made this transaction achievable, and are optimistic that future international sovereign debt operations will incorporate measures that aim to enhance environmental sustainability and resilience.”
It was outlined that the committee’s decision to support the proposed transaction, negotiated with the Belize authorities over six months, included “the uncertain prospects of Belize’s economy, including due to the [novel coronavirus] pandemic and other external shocks; a cash repurchase of the bonds; and Belize’s commitment to allocate a significant amount of money toward environmental conservation measures”.