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The government of Belize announced on Tuesday that it is unable to make an August 20, 2012, coupon payment on the country\u2019s US dollar Step-Up Bonds due 2029, setting up a potential default if the country is not able to restructure its debt.<\/p>\n
However, the government said it has already commenced discussions with the holders of this bond regarding a consensual restructuring of the instrument.<\/p>\n
“The Step-Up Bond alone represents approximately one-half of Belize\u2019s total recorded public indebtedness,” said Dean Barrow, Prime Minister of Belize and Minister of Finance and Economic Development. “The annual interest rate on this bond stepped up earlier this year to 8.5%. We simply cannot afford this coupon payment given the financing shortfalls and other challenges we face. Our hope, however, is that we can move quickly toward a sensible restructuring of the instrument.”<\/p>\n
Last week, the Central Bank of Belize proposed a restructuring of the bond that would discount its value and reduce its interest rate, according to a note on the bank’s website.<\/p>\n
If the government fails to pay the bondholders within 30 days of August 20, it will default on its debt.<\/p>\n
Following the announcement on Tuesday, Standard & Poor’s Ratings Services said it lowered its long-term foreign currency sovereign credit rating on Belize to ‘CC’ from ‘CCC-‘.<\/p>\n
“We also lowered our foreign currency issue rating on Belize’s US$546.8 million bond due in 2029 to ‘CC’ from ‘CCC-‘. At the same time, we affirmed our ‘C’ short-term foreign currency and ‘CCC+\/C’ local currency sovereign credit ratings on Belize. Our ‘4’ recovery rating and ‘B-‘ transfer and convertibility assessment remain unchanged,” S&P said in a press release.<\/p>\n
“The rating action follows the government’s announcement today that it will not pay the $23 million semiannual coupon due on August 20, 2012, on its $546.8 million bonds due 2029. The interest rate steps up to 8.5% on the accrued interest due this month,” said Standard & Poor’s credit analyst Kelli Bissett.<\/p>\n
On March 19, 2012, the government of Belize initiated a review of its external public debt, and on August 8, the government published indicative restructuring scenarios.<\/p>\n
“Under our criteria, either a missed payment or an exchange that we view as distressed constitutes a default,” Bissett said.<\/p>\n
Belize, which has per capita GDP of approximately $4,500, had net general government debt of 68% of GDP at year-end 2011.<\/p>\n
“We had projected the country’s 2012 gross external financing requirements at $210 million. We believe that Belize will fund this gap through the exceptional financing of default, import compression, and a drawdown of reserves, which the central bank reported at $282 million on a gross basis as of July 25, 2012. The negative outlook reflects the prospect that we will lower our foreign currency ratings to ‘SD’ if the government misses its August 20 payment as announced, or if it proposes a debt exchange to investors. The ratings could stabilize at this level if the government makes the payment and forgoes debt rescheduling negotiations,” S&P added.<\/p>\n