Apr 2015 Financial News

Grenada’s creditors agree to restructure US$262 Million of Bonds

Apr 16, 2015

Creditors of Grenada with US$262 million of defaulted bonds have agreed to a debt restructuring that will leave them half of the original face value, the Caribbean island's government said in a statement published on its website last Thursday.

The eastern Caribbean island with a population of 110,000 will give the bondholders US$131 million in international and local-currency securities due in 2030 with an interest rate of 7 percent, according to a government statement. A committee of institutional investors from the US, UK and Caribbean agreed to the terms, Natasha Marquez-Sylvester, the head of debt management, said by phone. The accord has yet to be made final, she said.

The swap would mark the second restructuring in the past decade for Grenada, an US$836 million economy that has struggled to recover from hurricane damage in 2004 and 2005 and a global recession that took a toll on tourism. The country’s debt, in proportion to gross domestic product, stood at 117 percent in 2014, second only to Jamaica in the Caribbean, according to International Monetary Fund estimates.

Grenada’s defaulted 2025 bonds are trading at about 32 cents on the dollar, according to data compiled by Bloomberg.

In 2013, Grenada defaulted on US$193.5 million in international bonds and several local bonds, a portion of which was held by international investors, including Franklin Advisers Inc., Grantham Mayo Van Otterloo & Co. and T. Rowe Price Associates.

Bondholders have agreed to an overall principal reduction of 50 per cent after exchanging their holdings for a new 15-year amortizing bond that carries a 7 per cent coupon.

Half of the 50 per cent haircut will take effect upfront. The remaining reduction will take effect on the successful completion of the International Monetary Funds's last review of an extended credit facility that is expected to end in late 2017 or early 2018.

As an additional compensation for their losses, bondholders will also receive a portion of the revenues that may be generated by the island's Citizenship by Investment program.

The principal on the new bonds will be repayable in 29 equal installments commencing on March 2016 and ending in March 2030.

Grenada is expected to complete the restructuring through an exchange offer in the second quarter of 2015 once documentation for the new notes has been finalized.

In 2013, the island nation defaulted on international and local bonds due 2025 after the global financial crisis and a series of hurricanes devastated the economy.

Despite its small size, the agreement is being closely watched by international investors, as Greece and Ukraine are striving to sort out their debt problems with creditors.

The agreement could provide a road map for other countries. “Grenada is just the first domino. There are other countries that are about to go through debt restructuring,” said Eric LeCompte, executive director of Jubilee USA Network, which helped negotiate the Grenada deal. In the Caribbean, Jamaica, Antigua and Barbuda, St. Lucia, St. Vincent and the Grenadines and Dominica have large debt loads, he said.

The deal is likely to provide the island with a significant reprieve. The relief represents 19 per cent of Grenada’s gross domestic product, the statement said. But the country still has US$907 million in public-sector debt.

Grenada’s default took place after hurricanes wreaked havoc on the island’s economy, whose tourism industry had already suffered from the global financial crisis.

The country’s economy is expected to grow by 1.2 per cent in 2015, according to the International Monetary Fund, and its public debt projected to reach 110.2 per cent of GDP.

(Bloomberg, Reuters, WSJ)

Source:
Business Guardian, BG8
Thursday April 16, 2015