The Superbond negotiating team dropped a financial super bomb on bondholders. In a release that was posted on the Central Bank of Belize's website this afternoon, G.O.B. said that it is unable to meet the August twentieth coupon payment of the Superbond. The payment is for ninety-three million Belize dollars, due next week Monday or within a thirty-day grace period which ends on the nineteenth of September. According to the release, "The Government of Belize announced today that it is unable to make an August twentieth, 2012 coupon payment on the country's U.S. Dollar Step-Up Bonds Due 2029. Belize has already commenced discussions with the holders of this bond regarding a consensual restructuring of the instrument." According to the release, "The Step-Up Bond alone represents approximately one-half of Belize's total recorded public indebtedness". News Five's attempts to contact Prime Minister Dean Barrow and Financial Director Joseph Waight were unsuccessful. However, we were able to reach the Managing Director of Investments for Oppenheimer, Carl Ross who says its bad news for investors while the government is quote "taking a very hard-line approach to the debt restructuring."
Via Phone: Carl Ross, Managing Director of Investments, Oppenheimer
"For bondholders, it's obviously a bad sign. This coupon payment that's coming up is one half of an eight and half percent coupon. So it is a lot of money and it is a very meaningful coupon payment for bondholders. So it is a very negative sign. What it means for the government is that the government is taking a hard-line approach to this debt restructuring. It is certainly taking a risk that is going to alienate the global financial market for a very, very long period of time. I think it's an important signal that there is probably very little room for negotiation in the government's mind. It is not unprecedented what they are doing, but it's certainly a very blunt instrument; a very hard-line approach."
Jose Sanchez
"The Prime Minister, Dean Barrow has said, "The annual interest rate on the bond stepped up earlier this year to eight point five percent. We simply cannot afford this coupon payment given the financing shortfalls and other challenges we face." Does that bring any clarity to the bondholders that maybe it is not even a hard-line, but that they just need to have some further discussions?"
Via Phone: Carl Ross
"I think it is important for me to say that I am not a bondholder and my company is not a bondholder. We have an interest in this process because a lot of our clients are bondholders. So with that, I would say that what bondholders are finding difficult to understand is that yes, every country in the world right now virtually have financial shortfalls. Virtually every country in the world is in recession or near recession. And nobody, no government out there has as much money as they need-at least very few governments. So in the context of that, actually Belize's situation doesn't look as bad as many other countries that bondholders own. So it's a little bit, in the eyes of bondholders-which I am not-it's a little bit difficult to understand and a little bit difficult to accept."
Jose Sanchez
"But clearly it is not a default. They haven't made a payment, but they are not saying that they are defaulting on the bond; they just want to have further dialogue. Do you think this is possible?"
Via Phone: Carl Ross
"I think that they dialogue has become more difficult now that the government has taken this approach of saying that we cannot afford to meet this coupon payment. I think if they were to meet this coupon payment, the dialogue with bondholders would be much more amicable and much more fluid and much easier. If the government does not meet this payment, they enter a realm of; I would say more animosity and more an adversarial approach. Now according to bond documentation, there is a thirty-day window to pay the coupon beyond the coupon payment date. So I think Belize won't be officially in default until that thirty-day window-which will be sometime in September-passes. And maybe that's what the government's up to. I don't know; you'll have to ask the government that, but it could be possible that they are just using the window to send a message that we are very serious about our restructuring here and we want a deep haircut from bondholders."
Belize, a Central American nation with an economy the size of Pine Bluff, Ark., is running out of money to pay its debts. But the tiny country is playing hardball with its lenders.
Belize is insisting that creditors forgive 45% of what they are owed, or allow it to delay any debt payments for 15 years. Otherwise, it says it won't make its next payment of $23.1 million due on Monday. And if Belize and its bondholders don't reach a deal by Sept. 19, the country will default on its $543.8 million in outstanding debt-making it the first sovereign default since Greece forced creditors to take a 53.5% loss in March.
Creditors say Belize didn't tell them directly that it planned to skip a payment. The country simply posted its intention on the Central Bank of Belize's website.
"We're mystified," said A.J. Mediratta, a partner with Greylock Capital Management and the leader of a creditors' group holding about $300 million in Belize's bonds. "I'm sure every country could benefit from not paying their debt but this isn't the way to do it. They're unnecessarily turning themselves into an international pariah."
The value of Belize's bonds tumbled after the proposal was posted on Aug. 8, and Standard & Poor's cut the country's rating one notch to double-C, the second-lowest grade before default.
Investors and analysts say they were shocked by Belize's proposal. Countries that haven't already defaulted typically ask to reduce their debt by less than 10%, said Gabriel Sterne, a researcher with London investment-banker Exotix, which specializes in risky debt.
It is also a departure from Belize's negotiation tactics when it restructured in 2007. Back then, the government negotiated with creditors from the start, agreeing to reduce payments by extending the maturity of its bonds, which kept the value of its debt intact.
"This would be one of the worst restructuring terms we've ever seen," said Joe Kogan, head of emerging-market strategy for Scotiabank in New York.
Belize Financial Secretary Joseph Waight said investors have had enough warning that a restructuring was coming and added the terms presented are necessary to close the country's budget gap.
"Belize has for some time been signaling that its fiscal position is very tight," Mr. Waight said in an email. "We are simply unable to meet the upcoming coupon payment."
Belize may believe its hand was strengthened by Greece's drawn-out negotiations with international creditors earlier this year, Mr. Sterne said.
Now the "Greek effect" could inspire other countries to pursue restructurings on more favorable terms, he said. It is a risky strategy. Argentina defaulted in 2001, and its economy rebounded quickly, fueled by a commodities boom.
However, the country was shut out of the debt market for years and hasn't sold bonds internationally since defaulting.
If Belize defaults, it and other small emerging economies might find it more difficult to access international financial markets, as investors would be wary of lending to them.
"Greece set a precedent for, 'Here's what you're going to get, take it or leave it,"' Mr. Sterne said.
Belize is one of the wealthiest countries in Central America. But its economy depends heavily on tourism, which has struggled to recover since the financial crisis.
Belize has spent heavily on infrastructure to boost its appeal to travelers, and the country also is struggling with the added debt burden of paying the shareholders of two companies it recently nationalized.
Belize has struggled to maintain a balanced budget since it nationalized a telecom company in 2009 and an electricity company last year.
The country faces a budget hole of $75.2 million as the government owes the two companies' shareholders an estimated $269 million and has public debt totaling nearly 80% of the country's gross domestic product.
Investors don't have much leverage once governments stop paying their debt. The creditors group led by Mr. Mediratta hasn't countered with a proposal of its own.
"Even if you don't need a restructuring you can force one upon bondholders because it's so hard to recover money from a sovereign who won't pay," said Scotiabank strategist Mr. Kogan.
Prime Minister Dean Barrow in a March television interview said the global 2029 bonds, issued by a different administration, had come at too high a price.
The bond's interest rate rises over the course of its life, reaching 8.5% for the August payment, from 4.25% in 2007, when several loans were consolidated into a single bond.
The extra cost will prevent the current government from using "our recurring revenue to do more for the people, to push employment and to push job creation," Mr. Barrow said in the interview.
Mr. Barrow's comments triggered a sharp selloff in Belize's bonds, driving yields higher. The yield peaked at 30.2% after the restructuring proposal earlier this month, from 16% at the start of the year. The bond yielded 26.3% on Friday.
Roberto Sanchez-Dahl, an emerging-market portfolio manager with Federated Investors, said he sold his portfolio's Belize bonds shortly after Mr. Barrow's public statements about the bond, when he said it became clear the government intended to get more favorable terms from bondholders.
"We thought that the probability of the government being bond friendly was going to be low, given [Barrow's] rhetoric of pushing against foreign holders [that] resonated very well domestically," Mr. Sanchez-Dahl said. "They would definitely not give priority to foreign investors, or put them in front of domestic needs."
In The Aftermath Of The Greek Blue Light Precedent: Belize Demands Half Off On Its Debt... Or Else
"Greece set a precedent for 'Here's what you're going to get, take it or leave it'" is how the WSJ summarizes an analyst's 'shocked' thoughts on the growing game of 'call my bluff' being played among beggars being choosers. Belize, a Central American nation with an economy the size of Pine Bluff, Arkansas, is surprise surprise running out of money to pay its debts and is insisting that creditors forgive 45% of what they are owed - OR allow it to delay any debt payments for 15 years (yes, seriously, read that again) - leaving a default on the country's $543.8mm almost inevitable.
Three things stand out to us: 1) the nation's government simply posted a note on its website that it would be 'skipping a payment' as opposed to telling creditors directly; 2) none other than 'Long GGBs are the slam-dunk trade-of-the-year' Greylock Capital are "mystified" that yet another trade has gone pear-shaped adding that they are "sure every country could benefit from not paying their debt but this isn't the way to do it!"; and 3) this would be one of the worst restructuring terms ever as the "Greek effect" could inspire other countries to pursue restructurings on more favorable terms - especially given that: "Even if you don't need a restructuring you can force one upon bondholders because it's so hard to recover money from a sovereign who won't pay,"
With the Belize 2029s trading at $37.375 (against a $55 'offer' of restructuring from the government), the market is obviously saying that a restructuring event will occur and be somewhat rapidly followed by a REdefault...
Prime Minister Dean Barrow in a March television interview said the global 2029 bonds, issued by a different administration, had come at too high a price.
The bond's interest rate rises over the course of its life, reaching 8.5% for the August payment, from 4.25% in 2007, when several loans were consolidated into a single bond.
...[preventing] the current government from using "our recurring revenue to do more for the people, to push employment and to push job creation,"
... triggered a sharp selloff in Belize's bonds, driving yields higher. The yield peaked at 30.2% after the restructuring proposal earlier this month, from 16% at the start of the year. The bond yielded 26.3% on Friday.
Roberto Sanchez-Dahl, an emerging-market portfolio manager with Federated Investors, said...
"We thought that the probability of the government being bond friendly was going to be low, given [Barrow's] rhetoric of pushing against foreign holders [that] resonated very well domestically," Mr. Sanchez-Dahl said. "They would definitely not give priority to foreign investors, or put them in front of domestic needs."
Belize's Prime Minister to Address the Super Bond Issue During a Press Conference
Tonight, the question is: will Belize go into default of its debt obligation on the stepped up US-dollar bond. The first payment, under the stepped-up eight and a half percent interest rate was due today; but as announced last week by the Prime Minister, government does not now have the twenty three million US dollars to make that coupon payment.
Some analysts, speaking with international media outlets believe that the announcement that Belize will not make the coupon payment brings the country closer to a formal default on its five hundred and forty four million US dollar foreign debt. In the absence of today's non-payment, there are further doubts that the Barrow administration will make any major efforts to make payment during the ensuing thirty day grace period.
According to the Associated Press, the Barrow administration has offered bondholders a harsh restructuring proposal that would imply reductions in the amount owed, lower interest rates or extended repayment terms.
Prime Minister Dean Barrow is scheduled to address the issue during a press conference scheduled for later this week in Belize City.
The Belize government has confirmed that no 2029 bond payments will be made Monday, giving the government and its lenders until Sept. 19 to agree on a restructured bond. If no deal is reached, the country will default on its $543.8 million in debt outstanding. Belize is in talks with investors to negotiate how to restructure the country's only bond, however the creditors haven't agreed to the country's proposal that includes either forgiving 45% of what they are owed, or delaying payments for 15 years.
"I don't see much room for a major departure" from the terms outlined in the proposal, Belize Financial Secretary Joseph Waight said on Monday.
A sluggish global economy has caused a slowdown in tourism and foreign direct investment in Belize. The bond restructuring proposed is designed to close the hole in the budget, the government says.
"Even if we were able to put our hands on short-term financing, it would not have assisted the process in the long run, and would have misled our creditors into believing the fiscal position was better than it really is," Mr. Waight added.
We start tonight with financial news on the accumulated five hundred and forty four U.S. million dollar Superbond which has become the most pressing issue before the government. Following an announcement on August eight offering three repayment scenarios, the government missed the coupon payment due today for some twenty-three million U.S. dollars. A one month grace period to make that payment now kicks in and government is staring a default which will have serious implications for the economy. While the Financial Secretary, Joseph Waight, was unavailable for comment to News Five, he is quoted earlier today in an article in Bloomberg saying that the government is also unlikely to pay during the grace period. Echoing what has been the official line on the non-payment, Waight says, "We simply do not have the capacity to make the payment. We are hoping to engage with creditors as quickly as possible." Bondholders believe that the government is heading for a strategic default and is attempting to force bondholders to accept a huge discount of forty-five percent on the original value of the bond and to extend the date of maturity further away from 2029. The three scenarios offered on August eight have already been rejected by bondholders. So for now the situation is precarious and there is a high level of uncertainty in the month ahead.
Worse-Than-Argentina Debt Offer Rejected by Belize Bondholders
Belize is offering bondholders 20 cents on the dollar in a debt restructuring, worse than what Argentina gave creditors following its 2001 default, according to Bank of Nova Scotia (BNS) and Citigroup Inc.
Investors are wagering that a better offer is coming.
Belize, the Central American nation that's home to the largest barrier reef in the Western Hemisphere, missed a $23 million coupon payment yesterday on $544 million of dollar bonds due in 2029. The government is unlikely to make the payment during a 30-day grace period, Finance Secretary Joseph Waight said in an interview.
While the bonds are trading at 35 cents on the dollar, Scotiabank says the government's three proposals to restructure the debt give the securities a net present value of about 20 cents, the least among 16 sovereign debt restructurings since 1998.
Belize's offer "is not a haircut, it's a scalping," said Arturo Porzecanski, a professor of international finance at American University in Washington. "It puts Belize in the same league as the most punishing restructurings in sovereign history."
The bonds from the country once known as British Honduras traded at almost 50 cents the first week of August, before Prime Minister Dean Barrow said the government couldn't afford to make the coupon payment. While a restructuring may deprive the $1.4 billion economy of foreign capital, it would let Barrow divert money to cover a budget deficit he said will climb to 2.5 percent of gross domestic product this year from 1.1 percent in 2011.
Coupon Jump
Belize's debt servicing costs increased after the coupon on the so-called superbond climbed to 8.5 percent in February from 6 percent as part of an accord reached with investors in 2007. Falling oil and tourism revenue added further strains, which may worsen after an agreement is reached with shareholders of nationalized companies Belize Telemedia Ltd. and Belize Electricity Ltd., according to the central bank.
"We simply do not have the capacity to make the payment," Waight said in a phone interview yesterday from Belmopan, Belize's capital. "We would like to engage with creditors and say 'Look, what is your reaction to these scenarios' and sit down with them to see if we can have constructive discussions leading to a solution."
The bonds fell 0.25 cent to 34.75 cents yesterday and reached 30.5 cents on Aug. 10, the lowest since 2007, when the debt was issued as part of a restructuring, according to data compiled by Bloomberg. The gap between the price and the government's offers show that bondholders are waging Barrow's government will sweeten the deal during the grace period to avoid a default, according to Jeremy Brewin, who helps manage $4.7 billion in emerging-market debt at Aviva Investors in London.
'Unilateral Decision'
Argentina, South America's second-biggest economy, offered bondholders securities valued at 30 cents on the dollar in a debt exchange in 2005 following its $95 billion default, Scotiabank said, citing data from Moody's Investors Service. Greece's 200-billion-euro ($247 billion) debt swap this year, which was the world's biggest debt restructuring, valued its bonds at 29 cents based on future cash flow, Scotiabank said.
While a restructuring in Belize is needed, the terms the government offered are too harsh, according to AJ Mediratta, a partner at Greylock Capital Management who is leading a group of investors holding about $300 million of the country's bonds.
'Unilateral Decision'
"We accept the fact there may be losses involved, but what we don't accept is a unilateral decision," Mediratta said in a phone interview from New York. "It is very hard to feel they've made the case for a restructuring on par or worse than Greece."
Two of the three restructuring scenarios the government has proposed call for a 45 percent principal reduction, a lower coupon and a maturity extension to 2042 from 2029. The third option includes the reduction of the 8.5 percent coupon rate to 2 percent with a 15-year principal grace period and a maturity date extension to 2062, the central bank said Aug. 8.
Assuming a yield of 12 percent, the bonds in the government's offer are worth between 20 cents and 22 cents, according to Nomura Securities International Inc. With a yield of 15 percent, it is no more than 18.33 cents, according to Citigroup.
Belize hired New York-based law firm Cleary Gottlieb Steen & Hamilton LLP to advise the government on its restructuring, Waight said. Cleary Gottlieb aided Argentina in two debt restructurings following its default.
With a restructuring, Belize would have enough resources to survive "for years" without having to borrow from international markets, according to Gorky Urquieta, who helps oversee $15 billion of emerging-market securities at ING Investment Management in Atlanta.
The voodoo that we need to make this work is lots of Greece and a sprinkling of Ecuador .. To be exact 26% Ecuador current market value $50 million and
74% Greece and scalping is done. Checkmate !
Barrow is offering 20 cents on the dollar, but bonds were actually trading at 35 cents on the dollar yesterday, up about 16% from a few days ago. Ray was trying to buy some for 5 cents on the dollar, so I guess Ray is even cheaper than Dean. The betting seems to be that the GOB will raise its offer a good bit in the next 30 days. I'm going to say the GOB offer will get up to around 30 cents or a little more.
26% of the superbond at 35 cents on the dollar is around $50m USD.
The magic numbers to watch is 25% and 75%.
Why 75% ? The CAC -meaning if 75% bondholders don't agree Belize can't get what we want.
Why 25% ? Well it take only 25% bondholders to go to the trustee to accelerate the loan - meaning since we have missed the loan payment they can ask for the full $544 back or go to court .
Now the voodoo strategy:
Ecuado:use a entity or "friend of Belize" to buy up 26% at current market value.
Greece: Since your looking for a 45% reduction pull a selective default by offering 55% of the bondholders
the TOTAL 55% of the loan you would pay and they would take it. You force the other 20% or so to take a deal or get nothing.
They are only 20% so they can't accelerate the loan bc you need 25% vote and you have the agreement of the other 76% so CAC is satisfied. If the bondholders think that this is the strategy they will go to court very soon if they think that its only a Greek style default then it would be waiting game.
By now, everyone knows that the government of Belize did not make the 46 million dollar Superbond payment that was due yesterday.
International bondholders are up in arms, but there haven't been howls of protest on the domestic front because the debt restructuring team led by Economic Ambassador Mark Espat engaged the social partners - everyone from NTUCB to the Chamber to COLA - to explain what would happen before it happened.
It seems everyone was invited to the party except the opposition. And that's why the PUP Party Leader seems to be in a sort of quandary: he wants to be consulted, but beyond that, he can hardly argue with the restructuring exercise; after all, the 543 million dollar Superbond comprises commercial debts incurred between 1999 to 2006 - and for most of that period, Fonseca was part of the Musa Administration.
So, the original Superbond and now Superbond 2.0 is kind of cleaning up the mess made during the PUP's terms in office - and maybe that's why when we spoke to Fonseca today he was circumspect about the missed Superbond payment - but still demanded consultation:..
Hon. Francis Fonseca, Leader of the Opposition "We have not been consulted at all on this matter. We have not been briefed at all on this matter as the 14 elected members of the opposition. As the leader of the opposition I have heard absolutely nothing from the Prime Minister or from anybody in the government on this matter. We have received no official briefing. What we know is what we heard from you on the television news or what we gather from the internet from the Central Bank website and that kind of thing."
"We are very concern obviously. We want to be responsible about this matter because we know that what we say can have consequences. So we want to be responsible and that is why we have asked for information and a proper briefing which has not been forthcoming."
Jules Vasquez "However I read in a recent PUP release that you all essentially support the re-structuring effort."
Hon. Francis Fonseca, Leader of the Opposition "We said that we want it to be successful. Obviously during the election campaign we talked about our different approach to governing and dealing with the problems facing the economy. But the elections are over, the government has made a decision to pursue a re-structuring of the bond and we certainly as a responsible opposition and as Belizeans - we want to see that succeed."
We also asked Fonseca about the recent resolution passed unanimously by his party's executive. That resolution - which was not announced to the public - makes it so that the leader cannot be challenged until after the next general election. It is unprecedented in the PUP's long history - and Fonseca explained the reasoning behind it:
Jules Vasquez "For the next four and a half years no one will be able to challenge you for leadership. Why was this decision taken and how do you answer the criticism that it's inherently ant ethical to the groundings of a democratic party?"
Hon. Francis Fonseca, Leader of the Opposition "It's not a suspension of the constitution. The constitution allows the national executive of the party to make decisions that the executive deems in the best interest of the party and that is how we arrive at that decision. It was not a decision that I made. It was a decision that the leaders of the party together came together and believe that it was important to provide stability for the party. We do not believe that it is undemocratic. We believe it is the right decision at this time and in the best interest of the party."
Jules Vasquez "Sir, but there has to be a reason why in the 40 years from 1956 - 1996 of leading the PUP Mr. Price never did it, From 1996 - 2009 Mr. Musa never did it."
Hon. Francis Fonseca, Leader of the Opposition "Never did what?"
Jules Vasquez "They never suspended challenges on the leadership. The party is built on the principle that any person can be leader of the PUP."
Hon. Francis Fonseca, Leader of the Opposition "No, we haven't suspended - what we have said is that in the interest of stability of the party and please we can go back - there are many decisions of the national executive. Records will show that at many times during the history of the People's United Party the national executive has intervene to ensure the stability of the party to ensure that certain decisions and a certain path was pursued in the work of the party. That is what we have done here."
Jules Vasquez "However any leader who does not have the face of challenge - it encourages in them sloveness. It encourages in them inaction. They know that they can't be challenge so they don't have to perform."
Hon. Francis Fonseca, Leader of the Opposition "Absolutely not, I think we are getting into internal party affairs which I know is a big issue for some in Belize in the media but let me say that the discussion that we had at the national executive level when we tabled this matter, we dealt with that very important issue. You're right, that can be one of the consequences. But we made it very clear that we are doing this because we need to be a more aggressive, a more forceful, a more effective opposition. So there is no chance of that happening."
Jules Vasquez "Should we be concern about the fact that A; you're leadership is not open for challenge and then B; you appear on a talk show and you don't take any call in questions."
Hon. Francis Fonseca, Leader of the Opposition"That was not our decision. I was quite surprise - in fact the host of the show indicated to us that there would be a call in segment. We were quite prepared to take calls. That was not our decision Jules."
The producers of the show explained that they made the decision to have questions sent in by text messaging, not by phone calls.
Superbond restructure talks resound locally and internationally
Locally, the private sector says it is in favor of the restructuring of the Superbond and that the government must pay its debts. The opposition has asked the prime minister the nation and says it wasn't consulted when the government decided not to pay the twenty-three million US dollar coupon. But internationally, the Superbond continues to make negative headlines in financial circles. There is swift reaction to government's decision not to meet the payment that was due on Monday. In the re-structuring, Government is offering bondholders twenty cents on the dollar, which is regarded as an offer so low that it is worse than what Argentina gave creditors following its 2001 default. The Bank of Nova Scotia (BNS) and Citigroup Inc. also describe the three proposals advanced on August eighth as the least among sixteen sovereign debt restructurings since 1998. And according to Arturo Porzecanski, a professor of international finance at the American University in Washington, it is not a haircut, it is a scalping which puts Belize in the same league as the most punishing restructurings in sovereign history. The Prime Minister will be holding a press conference this Wednesday and this hot button issue is surely to come up. In some quarters there is optimism that the payment will be met during the thirty day grace period because the government made the allocations in the budget and because a default is likely to land Belize in the arms of the International Monetary Fund. So for now, the weight of uncertainty continues to place Belize in a most unenviable position.
Moody's Investors Service revised its outlook on Belize's ratings to negative from developing, after the Central American government failed to make a payment on its bonds maturing 2029.
Belize currently has a foreign currency rating of Ca, which denotes highly speculative credit.
The outlook revision comes a day after Belize's government failed to make an interest payment, giving the government and its lenders until Sept. 19 to agree on a restructured bond. Belize is in talks with investors to negotiate how to restructure the country's only bond, however the creditors haven't agreed to the country's proposal that includes either forgiving 45% of what they are owed, or delaying payments for 15 years.
The missed payment prompted fellow ratings firm Standard & Poor's to lower Belize's rating to selective default from double-C. Both Moody's and S&P have issued several downgrades on Belize this year, citing concerns about the possibility of another debt restructuring there.
Moody's now expects that the government to formally default following the expiration of a 30-day grace period, unless a restructuring agreement is reached before then. The ratings firm said the fundamental driver of the restructuring process continues to be a deterioration in the government's willingness to service its external debt.
Government of Belize Press Conference Statement by the Prime Minister Wednesday, August 22, 2012 Ladies and Gentlemen, Good morning, The nation has been aware for months now of Government's debt restructuring exercise, announced before the March 7 general election and commenced almost immediately thereafter. As the process accelerated, press releases have been periodically issued in an effort to update the public. Recently we published our indicative restructuring scenarios, our proposals as to how the Superbond might be reconfigured to provide Belizeans with the relief we both need and deserve. Then we announced last week that we would be unable to make the interest payment that was due on Monday. This last development in particular has greatly intensified attention, at home and abroad, on the issue. Hence, this press conference now to fully address the matter. The objective today is to provide all information possible. But it is also, I tell you plainly, to seek support, to rally the country behind what is a necessary and just endeavour. Let me begin, then, with the all-important background. As the facts make clear and the records reveal, the current mountain of public debt was accumulated during the period 2000 to 2005. This was when, for the first time in our history, the then administration resorted to short-term, high-priced, external commercial loans to fund bloated and corrupt financing needs. During those six years alone, those loans totaled BZ $1,124,200,000, and eventually became the Superbond. The loans were contracted by the then Government at interest rates exceeding 11%, and with so-called bullet maturities, or lump sum payment, due as early as five years after commencement. All this meant is that for that 2000-2005 period, Belize's commercial external debt increased by BZ 190 million annually. By 2008 when the present Administration took over, the national debt had more than quadrupled. Together with this seismic increase in debt overhang, my Government was also confronted with the commodity and oil price shocks that greeted the start of our first term. This was when, for example, the per barrel price of petroleum surged to US$147. And compounding the disaster scenario was the onset of the most severe global financial and economic convulsion since the Great Depression of the 1930's. This was a nightmare. And in the middle of it the pressing priorities of poverty reduction, education, healthcare, security and infrastructure development still had to be managed. In this context it is nothing short of a small miracle that this UDP Administration proceeded to fulfill every debt obligation after taking office, including the almost BZ$300 million in interest payments on the Superbond. But the price that we paid, the sacrifices that we made, to meet fiscal and debt targets, became increasingly unendurable. And earlier this year, we recognized that despite our unrivaled fiscal discipline, the level of public debt had remained too stubbornly elevated. This was contributed to by the step-up Superbond interest rate; and was in combination with the protracted nature of global contraction, the decline in our oil production and revenues, and the unavoidable intervention in the public utilities sector leading to the acquisition of BTL and BEL. It was against this backdrop that I announced the intention to seek a mandate from the voters, at the last general election, to renegotiate the terms of the Superbond. On March 7 the people of Belize gave this mandate. And thus was consecrated this mission to place our country once and for all on the road to long term debt sustainability. Within days of our reelection, the Debt Review Team had been appointed and a comprehensive debt review had commenced. Then on June 20, the Government published a Financial and Economic Update, signaling the completion of the review process and confirming the formal decision to restructure (our external commercial debt) the Superbond. That Update included estimates of the financing gaps Belize would face in the short term, in the absence of material debt relief. And those gaps were as large as 8% of GDP. Subsequent to the release of the Update, our Negotiating Team, assisted by our external debt advisors, White Oak Advisory, reached out across continents. We thus engaged with multiple individual creditors amounting to, by face value, over 85% of the Superbond holders. Preliminary views were also exchanged with advisors to a Creditor Committee formed to represent some individual bondholders that had banded into a group. Belize's circumstances were explained in great detail; queries were addressed; and suggestions made by the bondholders were recorded, all in good faith. After this period of consultation, Belize posted Indicative Restructuring Scenarios on August 8. Three alternatives to the current Superbond terms were put forward, namely: a 50-year "par" option, with a 15 year principal grace period and a 2% interest rate a 30-year, 45% "discounted" option, with semi-annual repayment installments, without any principal grace period and with a step-up interest rate starting at 1% and gradually rising to 4% a 30-year, 45% "discounted" option, with a 5 year principal grace period, and with a mortgage style repayment at an interest rate of 3.5% On Tuesday, 14 August, the Government announced that it was unable to make the step-up interest payment that was due on August 20. Although debt service payments for 2012 were included in our annual budget, we made it clear at the time of the presentation that the Government had not yet identified the source of funding for the August payment. And I intimated in the speech that the payment, or all of it, was not a sure thing. In the end, as might have been surmised by those that had listened, no source of funding for the payment did materialize. We therefore could not pay. And that will remain the case unless we get the relief that can affect the dynamics and impact our ability to pay. I also need to make clear that the published Indicative Scenarios are not a formal offer to the bondholders. They set out our calculations as to the nature and relief that our circumstances demand, and are intended to serve as a basis for the detailed discussions now with bondholders. They have, of course, been derived directly fromand are fully supported by-the projections published in June. Those projections clearly indicate that we face significant and persistent financing gaps. And the projections are in turn based on finely drawn calculations arising straight out of the known data and consequential computations. These latter have been shared with the creditors. Now we are confident that our Indicative Scenarios would achieve the objective of closing the financing gaps that we identified in June. But we acknowledge that there may be alternative structures and approaches that could achieve similar ends. Consequently, we are prepared to consider and discuss any proposal that creditors may wish to put on the table. However, I am obliged to underscore that the Government of Belize will only accept a resolution that fully reflects the country's capacity to pay. Debt sustainability is the whole and entire object of the exercise, which brooks no other possibility. And although our readiness for a face-to-face meeting is as yet to be taken up by the creditor committee, serious, good-faith negotiations are the only route to a consensual solution. Apart from the initial debt review, and now the full-bore restructuring operation, the Belize Team has also been exploring the possibilities for settling the so-called additional liabilities; namely, compensation for the BTL and BEL shares. However, initial contacts in this regard have not to date yielded serious progress. As well, to verify our projections and to widen support for our debt operation, our Team has maintained consistent communications with our IFI partners, especially the IDB and the IMF. A package of fiscal policy measures was negotiated with the former and has been fully implemented. This is in further earnest of Government's commitment to reform, development and growth. Most important of all, since releasing the Indicative Restructuring Scenarios, GoB's Team has consulted with a host of social partners including the Belize Chamber of Commerce and Industry, Belize Tourism Industry Association, the National Trade Union Congress of Belize, COLA, ORINCO, APAMO, representatives of the banking sector, and the Council of Churches. I am pleased to say that every group we met has been positive; and today's nationwide outreach is meant to expand on that solidarity. But undoubtedly the support for this debt exercise is already broad and deep. The dialogue with the people and the social partners will continue, even as the negotiations with Superbond holders intensify. Every effort will be expended to maintain the current lockstep in which the nation is marching, down this path to reclaimed stability and sustainability. I close with this recapitulation: Superbond holders are NOT being asked to serve as first responders to Belize's public debt crisis. In fact, our approach to these creditors comes only after making painful sacrifices and satisfying ourselves that no other choice any longer exists. This debt blaze is truly a bonfire of the last administration's obscene financial vanities. And it was foreordained between 2000 and 2005 when the match of short term, high interest debt was lit. Five years of prudent macro-economic management and non-commercial borrowing temporarily contained the flames. But now the conflagration once again is upon us. And for the benefit of Belizeans, and our longterm creditors, it is time to put out this fire once and for good. My Administration is thus unshakeable in its determination to secure the relief necessary to place the public debt on a sustainable footing and remove the prospect of immolation. And we will go as long as we have to and do whatever we must to accomplish this. For it is neither bluff, bluster nor bravado, when we say that nothing else will suffice. I now invite your questions.
Skipped Superbond Payment? No Worries, PM Says Bondholders Will Come Around
Yesterday, Standard and Poors lowered Belize's sovereign rating to "Selective Default" - which is as near to the bottom of the barrel as you'd want to get.
But if you're looking for panic, or telling distress signals coming out of Belmopan - you'd better look somewhere else - because Prime Minister Dean Barrow and his debt restructuring teams area as cool as December.
In fact, they appear ready to wait until December for bondholders to come around to their proposed terms of repayment.
This morning at the Biltmore, the Prime Minister laid out the game plan at a press conference that lasted almost two hours.
Here are some key highlights:
Jules Vasquez Reporting
Prime Minister Dean Barrow - Prime Minister of Belize "The objective of the press conference, today, is to provide all possible information to the nation. But it is also, I tell you plainly, to seek support, to rally the country behind what is a necessary and just endeavour."
Flanked by his debt restructuring team, including Minister Godwin Hulse, Economic Ambassador Mark Espat , Financial Secretary Joe Waight and Central Bank Governor Glen Ysaguirre.
The Prime Minister laid plain the national strategy - which is that no payment will be made until suitable terms for a new bond can be worked out.
And he says, no payment could be made two days ago when 46 million dollars was due on the current Superbond.
Prime Minister Dean Barrow "No source of funding for the August payment did, in fact, materialize. We therefore, on Monday, could not pay. And that will remain the case unless we get the kind of relief that can affect these debt dynamics and in fact impact our ability to pay. However, I am obliged to underscore that the Government of Belize will only accept a resolution that fully reflects the country's capacity to pay. Debt sustainability is the whole and entire object of this exercise, which brooks no other possibility."
And after his prepared remarks, Barrow took questions from the local and, international press including Bloomberg and Time Magazine - giving off an airy and detached cool
Prime Minister Dean Barrow "Debt relief for Belize is a sure thing, unavoidable, and is going to happen. So, we're in fact - in my view - only talking about degree. We make clear that we are not at all at a point where there is any contemplation of any possibility that the negotiations will not proceed. And we make clear, one again, that we are absolutely confident of success. We're absolutely confident that we can reach an agreed solution with our creditors. If - Lord forbid - that does not happen, Belize is prepared for all the options."
But, those options do not include devaluation or seizure of foreign assets according to the PM:
Prime Minister Dean Barrow "If there were to be a default, let me make absolutely clear that this has nothing to do with the stability of our currency, nothing to do with the fixed exchange rate peg. So, even if - worst case scenario - there were to be a Belizean default with respect to the Superbond, that can in no ways affect the soundness of our currency. The question of for example, being locked out of capital markets - and that would assuredly be one consequence of default - but how does that make us any worse off? We're locked out of capital markets even now. If there is a default, and that is followed by litigation on the part of the bondholders, well that's something that, again, we have to look at. All I will say is that countries that have previously defaulted: Argentina, Equador - for example, I don't think bondholders have gotten very far in trying to seize the assets of those countries abroad. And I don't think that I am giving away any state secret when I say that, I don't know about assets that this country has abroad, so."
But, the PM had to play it up for the hometown crowd, while also carefully watching his remarks which will be scrutinized by international bondholders. He made it clear that it is not that Belize doesn't want to pay, but that it cannot:
Prime Minister Dean Barrow "Superbond holders are not being asked to serve as first responders to Belize's public debt crisis. In fact, our approach to these creditors has been crafted and comes only after we have, in this country made painful sacrifices. And you know things we would have liked to do for the Belizean people but have been prevented from doing? No, there is no doubt in our minds that we have made the sacrifices that have sometimes been almost too painful to endure. And so, we are in both an excellent moral as well as economic position. I say that it is nothing short of small miracle that this UDP Administration proceeded to fulfill every debt obligation after it took office, including paying almost 300 million dollars in interest on the Superbond."
But, Belize will pay no more, and responding to one criticism that called the proposed 45% principal haircut a scalping, the PM did not reject the analogy:
Prime Minister Dean Barrow "If the circumstances require a scalping, then that is what the circumstances require."
And the PM says that the new deal will be the final deal:
Prime Minister Dean Barrow "What we're doing, as an effort to once and for all, come to terms with our debt profile, there's not going to be after this, any other restructuring. This is it, we're in for all the marbles."
And nearing the end of the press conference, members of the negotiating team Ambassador Mark Espat and Governor Glen Ysaguirre left for Washington where they will hold meetings with the IDB and others.
The IDB's support is critical because they are being asked to partially guarantee the restructured bond - a deal which we gather from the Prime Minister's tone is some distance from being sealed.
Prime Minister Dean Barrow - Prime Minister of Belize "We are talking about a PBL. That is the principal form of assistance that we're looking at. I will confess quite frankly that we're not there yet, and that's one of the reasons for the team leaving today to talk to IDB. Quite frankly, what is happening, I think that there are those who would want to see us engaged in a standby arrangement with the IMF. And, there are those who might feel that in trying to engage the IDB, we're an end-run around the IMF, which is not so. We're talking to both of them, and we're seeing how together, they might offer some assistance. What is clear is that we've signaled from the beginning that we're not going to go into any IMF programs. So, ultimately, if that is make or break, then break there will be."
Spade: If you kill me, how are you gonna get the bird? And if I know you can't afford to kill me, how are you gonna scare me into giving it to you?
Gutman: Well, sir, there are other means of persuasion besides killing and threatening to kill.
Spade: Yes, that's, that's true. But - they're none of 'em any good unless the threat of death is behind them - do you see what I mean? If you start something, I'll make it a matter of your having to kill me or call it off.
Gutman: (chuckling) That's an attitude, sir, that calls for the most delicate judgment on both sides. 'Cause as you know, sir, in the heat of action, men are likely to forget where their best interests lie and that their emotions carry them away.
On one level, sovereign debt restructuring is just like corporate debt restructuring. You have bondholders, you have holdout bondholders and you have a debtor that is more worried about surviving today than honoring commitments made long, long ago.
On another level, it's entirely different. Most obviously, there is no bankruptcy code for sovereign nations. But it's not clear there need be such a mechanism, since sovereign nations have, of course, sovereign immunity. A bondholder can't get a New York City marshal to issue a levy on the minivan in front of the consulate.
Moreover, as a relatively small borrower, Belize probably has to worry more about long-term access to the financial markets than a country like Argentina or even Greece. The threat to shut a country like Belize out of the market is far more credible.
However, any recovery the bondholders can get through a restructuring deal is probably going to be the vast bulk of the total recovery. As such, the bondholders can't bargain so hard that Belize just says "forget it."
Inevitably, this will lead to some commentary wondering why bondholders even bother to buy debt from high-risk countries like Belize. It’s the same reason that bondholders buy debt in risky American companies that have pledged all of their assets to secure a syndicated loan. After all, neither is likely to result in a big return upon default.
Stephen J. Lubben holds the Harvey Washington Wiley chair in corporate governance and business ethics at the Seton Hall University School of Law and is an expert on bankruptcy.
The opinions and views expressed on this board are the subjective opinions of Ambergris Caye Message Board members and not of the Ambergris Caye Message Board its affiliates, or its employees.
AmbergrisCaye.com 
"We have not been consulted at all on this matter. We have not been briefed at all on this matter as the 14 elected members of the opposition. As the leader of the opposition I have heard absolutely nothing from the Prime Minister or from anybody in the government on this matter. We have received no official briefing. What we know is what we heard from you on the television news or what we gather from the internet from the Central Bank website and that kind of thing."
Yesterday, Standard and Poors lowered Belize's sovereign rating to "Selective Default" - which is as near to the bottom of the barrel as you'd want to get.
"The objective of the press conference, today, is to provide all possible information to the nation. But it is also, I tell you plainly, to seek support, to rally the country behind what is a necessary and just endeavour."
