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May 14, 2020

Belize Superbond sinks following Moody’s downgrade and questions over ability to pay

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Posted: Thursday, May 14, 2020. 8:19 am CST.

By BBN Staff: A day following a credit rating downgrade by Moody’s Investors Services in regards to Belize’s 2034 commercial bonds (Superbond), the price of the bond fell on Wednesday, as Moody’s questioned the country’s ability to meet its next coupon payment of US $13 Million due in August.

According to the terms of the bond as per its last restructuring, there is a grace period allowed if Belize were to miss that coupon payment, however, extending beyond that grace period would result in a default and a likely historic restructuring of a bond which has been restructured at least three times already.

“The 4.9375% February 2034 bond fell 11 points in price to bid 40, pushing the yield up to 16.88%, according to data provider Refinitiv. As recently as late February, the yield had been as low as 10.15% before steadily climbing as the pandemic deepened in the region. The current yield has not been this high since the bond was restructured three years ago,” a report from Latin Finance noted.

On Tuesday Moody’s downgraded Belize from a B3 rating to a Caa1 rating citing “increased and now very high probability” that it will either defer on interest payments or enter into a distressed debt exchange because of the economic stresses imposed by the COVID-19 pandemic.

According to Latin Finance, one investor familiar with Belize’s debt position, who requested anonymity, said it was unclear if the government made any official moves to start a process for discussing the interest payment due in August on the bond. The 2034 issue has roughly $526.5 million outstanding, according to Refinitiv. A government spokesman was not able to make a comment immediately when contacted after business hours on Wednesday, Latin Finance reported.

In March 2017, Belize said 87% of the holders of its then 2038 Superbonds consented to a restructuring of its bond. At the time, the new terms spelled out that the interest rated accrued will be set to 4.9375% from 5%. The notes will also no longer increase to 6.7%, as was planned for August of that year. The maturity was modified to 2034 from 2038. The terms also stipulated that Belize commit to GDP growth of at least 2% for the first 3 years following the restructuring, which seems an unlikely target given that Moody’s predicts GDP to contract by as much as 15% this year.

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