Belize reached an agreement in principle with a group of bondholders to buy back its debt at a discount, but with an unusual and ocean-friendly twist.
Under the agreement announced Friday, the Caribbean country will buy back, redeem and cancel all of its outstanding dollar bonds, the Ministry of Finance and the bondholder group said. Belize has about $530 million of its so-called superbonds outstanding.
What is unusual is the financing. The government plans to use money provided by the Nature Conservancy’s blue bond financing program, which uses private capital to help refinance countries’ public debt. Under this program, Belize will implement “lasting marine conservation efforts and sustainable marine-based economic activity,” according to the government’s statement.
Belize will also fund a $23.4 million endowment to support future marine conservation projects.
Under the preliminary pact, creditors who tender their bonds before the deadline will receive a cash amount equivalent to $550 for every $1,000 of outstanding principal on the bonds as of September 1. The 2034 bonds were little changed Friday at 39.9 cents on the dollar.
This is a key deal for the serial defaulter, which was downgraded by S&P Global Ratings in May amid doubts that the country could meet interest payments on its superbonds due in 2034.
The additional yield demanded by investors to hold the nation’s sovereign bonds above U.S. Treasuries was 1,630 basis points on Friday, according to data from JPMorgan Chase & Co, well above the threshold for the debt to be considered distressed.
Belize has a long history of international debt problems, having defaulted, changed terms or restructured its dollar bonds at least five times in the past 14 years. The coronavirus and brutal hurricane seasons have made matters worse for this tourism-dependent nation, derailing what had been a nascent economic recovery.
Earlier this year, the government said it was trying to engage bondholders in restructuring negotiations and won approval to defer interest payments, a delay that was recently extended to Sept. 19.
Last year, authorities obtained consent from investors to capitalize interest payments on the superbonds.
An agreement in principle was reached Friday with a key creditor committee consisting of Aberdeen Standard Investments, Grantham, Mayo, Van Otterloo & Co. and Greylock Capital Management. The group holds around 50% of the outstanding principal amount of the notes.
In order for the transaction to proceed, Belize will need to obtain the consent of the holders of 75% of the outstanding principal amount. The blue bond financing will also have to be concluded for the deal to go ahead.
The preliminary agreement comes before a cash tender offer and consent solicitation. If the Belize offer is approved in full, the amendments will take effect on the November 19 settlement date, according to the government statement.