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A busy street in Bridgetown, the capital of Barbados, before the onset of the coronavirus pandemic. (File photo)

Barbados debt exchange gets creditor approval

A busy street in Bridgetown, the capital of Barbados, before the onset of the coronavirus pandemic. (File photo)

The Government of Barbados (GOB) has planned a debt exchange to bring down its debt to gross domestic product (GDP) ratio by the middle of December and reduce cash flow to service debt by BD$500 million.

The Barbados debt exchange is expected to reduce cash flow to service debt to BD$500 million.

The GOB announced that it received overwhelming support from creditors, as preliminary results indicate that holders of approximately 94 per cent of total aggregate claims eligible under the recently closed exchange offers for seven series of US dollar denominated public debt participated by tendering their claims for exchange. In addition, the participation rate for all instruments containing collective action clauses or the equivalent were in excess of the required 75 per cent voting threshold. The Government therefore expects that the relevant extraordinary resolutions will be passed at the bondholder meetings to be held on 27 November 2019, and that 100 per cent of debt instruments covered by the invitations will be exchanged for the new bonds and cash consideration. The settlement of the invitations is scheduled to take place on 11 December 2019.

The debt exchange will support plans being rolled out under the Barbados Economic Recovery and Transformation plan with support from the IMF’s Extended Fund Facility.

When the transaction is closed it will provide Barbados with upfront debt cancellation of just over US$200 million. It will also spread out over the next decade heavy short-term USD debt maturities that had been scheduled to fall due between June 2018 and October 2022. Over this period alone, the US dollar commercial debt exchange will generate cash flow savings of approximately US$500 million. This external debt exchange effectively completes the restructuring of Barbados’s until-now unsustainable public debt burden that was announced on 1 June 2018.

This in conjunction with the fiscal and economic reforms already being implemented under the Barbados Economic Recovery and Transformation (BERT) plan, is expected to bring the country’s debt-to-GDP ratio to 60 per cent by 2033/34. It is also expected that the closing of the US dollar debt exchange offer will generate further momentum for the rehabilitation of Barbados’s credit rating, and support the ambitious reforms being rolled out under the BERT plan with the support of the current Extended Fund Facility from the International Monetary Fund.