Superbond 3.0 Brings New Ratings from Standard and Poor

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Updated: March 21, 2017

Five days ago, Standard and Poor’s Rating Agency lowered Belize’s long term foreign currency rating from a CC to SD meaning Selective Default.  In addition to that Belize was moved from the status of Credit Watch with negative implications where it was placed on February 21.  In the short term foreign currency rating, Belize was taken from a C to a D rating.  Under the long term local currency category Belize remains with a CC rating and a C rating on the short term local currency rating and in the long term local currency rating, the country went from a negative rating to stable.  The S & P Rating Agency also noted in their release issued Monday, March 20 that they have lowered their rating on the bonds included in the sovereign’s debt exchange to ‘D’ from ‘CC’.  The rationale behind these changes in ratings relates to Belize’s announcement on March 15, 2017, that holders of more than 87% of the U.S. dollar bonds due in 2038 have consented to amendments to the terms of the bonds, which will alter the interest rate and amortization schedule. The collective action clauses relating to the U.S. dollar bonds specify the voting threshold at 75% of bondholders. Above this threshold, the proposed amendments become binding to all holders of such bonds. According to the proposed amendments, the bonds will have a final maturity date of Feb. 20, 2034, instead of Feb. 20, 2038. In addition, the amendments will provide that the principal amount of such bonds will amortize in five equal, annual installments commencing on Feb. 20, 2030, and ending on Feb. 20, 2034; replacing the original amortization schedule, which was previously scheduled to begin in February 2019. Finally, the interest rate on such bonds (which was scheduled to step up to 6.767% on Aug. 20, 2017) will now be fixed for the life of the bonds at 4.9375%.  S & P says, quote, “As per our criteria, we characterize this exchange offer as distressed as it is our view that holders of the U.S dollar bonds have accepted less than the originally promised payments because of the risk that the issuer won’t fulfill its original obligations with respect to such bonds.  Also, according to our criteria, once a distressed exchange offer has been confirmed (albeit with a future effective date), we lower the issuer rating to ‘SD’ and the affected issue rating to ‘D’.We believe the government is less likely to default on its local currency-denominated debt, and it has made no mention of its intention to restructure this debt. Therefore we affirmed our local currency ratings.The government of Belize expects that the restructuring will become effective by March 21, 2017. Upon completion of the restructuring, we will reassess the sovereign’s general credit standing, most likely raising the foreign currency long term rating to the ‘CCC’ or low ‘B’ categories.”  End of quote.