Barbados has reached an agreement “in principle” with external creditors that Prime Minister Mia Mottley said would help the country “put behind us the chapter of the excessive debt creation and we can move on to rebuilding this country”.
A joint statement issued here noted that the “agreement in principle includes a reduction of 26.3 per cent in aggregate sum of the original principal amount of the debt obligations and the past due and accrued interest as of October 1, 2019”.
The agreement comes a few months after the external creditors, who hold over 55 per cent of the aggregate total of the instruments, unanimously rejected an offer presented by the Mottley government in June.
Last year, soon after coming into office, the government announced an immediate suspension of debt payments in an effort to restructure the country’s burdensome debt of 157 per cent of gross domestic product (GDP).
Government managed to reach a debt restructuring plan with local creditors by October last year, which included a cut in interest and longer payment terms, resulting in the island’s debt to GDP being reduced to around 125 per cent.
The new agreement reached with the Barbados External Creditor Committee is similar to that accepted by local creditors, featuring reduced principal and interest indebtedness.
According to the joint statement, under the agreement, the external creditors would “exchange certain of Government’s US dollar denominated debt for new bonds issued by Barbados”.
This includes Barbados’ 7.8 per cent fixed rate bonds due 2019, 7.25 per cent notes due 2021, seven per cent notes due 2022, 6.625 per cent notes due 2035 and a floating rate loan with final maturity in 2019. It is anticipated that the new bonds, due 2029, will be issued with an aggregate face value of US$500 million.
In addition to having a final maturity on October 1, 2029, the new bonds will have a five-year grace period on repayments of the original principal; a debt management provision through October 2024; equal semi-annual principal amortisations commencing April 2025 through the remaining term of the bonds and a fixed annual coupon of 6.5 per cent.
The new bonds will also have a “natural disaster clause” that would, subject to certain conditions and input from the bondholders, enable Government to “capitalize interest and defer principal maturities due on the new bonds for two years” in the event that Barbados is adversely affected by natural disasters.
There would also be a clause providing for the reinstatement of forgiven principal and past due and accrued interest if Government defaults on payment before the successful completion of the ongoing International Monetary Fund (IMF) programme.
Last October, the Washington-based financial institution approved a four-year US$290 Extended Arrangement under the Extended Fund Facility (EFF) for Barbados.
In the joint statement, the government it expects to launch a “parallel exchange offer for certain US-dollar denominated instruments issued under Barbados law in the coming weeks, effectively completing the comprehensive restructuring of the country’s high debt burden.
“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 statement noted.
It said 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 organisation and good faith interaction with Barbados.
Government will, in the coming weeks, be launching the invitations to debt holders to participate in the restructuring.
Mottley, addressing a motorcade of the successful Barbados Trident cricket team in the recent Caribbean Premier League (CPL), said that “on the first of June last year, we inherited a country that was the third most indebted country in the world.
“We had a debt to GDP ratio of 176 per cent and we said to the people of this country, ‘let us work together, because if we do it together, we can begin to reverse the trend of 19 credit downgrades that had us feeling as though we were smaller than small,” she said, adding “we reached an agreement with our creditors so that we can put behind us the chapter of the excessive debt creation and we can move on to rebuilding this country”.