Monday 28 September, 2020

Government reaches agreement on external debt

Government and the External Creditor Committee have reached
an agreement to exchange certain of the government’s U.S. dollar-denominated debt for new bonds to be issued by Barbados.

This includes Barbados’ 7.8% Fixed Rate Bonds due 2019, 7.25% Notes due 2021, 7.00% Notes due 2022, 6.625% Notes due 2035, and Floating Rate Loan with final maturity in 2019.

The agreement in principle includes a reduction of 26.3% in the aggregate sum of the original principal amount of the debt obligations and past due and accrued interest as of 1 October 2019.

In addition, the new bonds will have the following key terms:


• A final maturity of 1 October 2029;


• Five year grace period on repayments of original principal;


• A debt management provision through October 2024;


• Equal semi-annual principal amortisations commencing in April

2025 through the remaining term of the bonds;


• A fixed annual coupon of 6.500%;


• A “natural disaster clause” that, subject to certain conditions and

input from holders of the new bonds, will enable the Government

to capitalise interest and defer principal maturities due on the new

bonds for two years in the event that Barbados is adversely affected

by an earthquake, tropical cyclone or rainfall event under its

Caribbean Catastrophe Risk Insurance Facility Segregated

Portfolio Company insurance coverage; and


• A clause providing for the reinstatement of forgiven principal and

past due and accrued interest upon the occurrence of a payment

event of default prior to the successful completion of the ongoing

International Monetary Fund program.


The amount of past due and accrued interest as of 1 October 2019 that is not to be cancelled will be treated as follows:


• US$7.5 million to be paid in cash at closing to holders participating

in the exchange (subject to the deduction of the Committee’s

unreimbursed costs and expenses below);


• US$32.5 million paid in the form of PDI bonds with a fixed annual

coupon of 6.500%, with an amortization of US$30.0 million in

October 2020, and a final maturity of February 2021; and


• Balance to be capitalised into the new bonds that will mature in

October 2029.

The agreement in principle follows extensive discussions between the Committee and the government. These discussions have included a number of meetings between senior governmental officials and representatives from the four core members of the Committee, which includes Eaton Vance Management, Greylock Capital Management, LLC, Teachers Advisors, LLC, and Guyana Bank for Trade and IndustryLimited. Two of the meetings were attended by Prime Minister and Minister of Finance, the Hon. Mia Amor Mottley.

The Committee’s unreimbursed costs and expenses incurred in connection with the negotiation and implementation of the restructuring transaction (US$3 million) will be deducted from the cash payment made by the Government at closing in relation to past due and accrued interest, so that these costs and expenses are borne equally and fairly among all holders.

It is anticipated that the new bonds due 2029 will be issued with an aggregate face value in excess of US$500 million. These bonds have been structured with eligibility for J.P. Morgan Emerging Market Bond Index (EMBI) inclusion in mind.

The Government expects to launch a parallel exchange offer for certain U.S. dollar-denominated instruments issued under Barbados law in the coming weeks, effectively completing the comprehensive restructuring of the country’s high debt burden, which included the successful closing of the B$11.9 billion (equivalent to US$5.95 billion) domestic debt exchange offer in November 2018.

The agreement in principle reached by the parties, and the support of the members of the Committee for the proposed restructuring, is conditional on the parties reaching agreement on mutually satisfactory documentation setting out the detailed terms of the transaction and the new bonds. The Government and the Committee have agreed to commence work immediately on, and to work in good faith with their respective advisers
to reach agreement on, mutually acceptable documentation and the implementation of the proposed transaction. The Government and Committee members have also agreed to maintain an ongoing dialogue on economic and financial developments in Barbados following the conclusion of the proposed transaction which may include a provision of
the new bonds to facilitate bondholder organization and good faith interaction with Barbados.

The Committee organized in early June 2018 and currently represents more than half of the Government’s Eligible Debt.

The Government plans to launch the invitations to holders in the coming weeks to participate in the restructuring.

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