Belize will see in the next few days if its ambitious plan of restoring its finances while protecting one of its prime natural resources, an area of the Caribbean containing the world’s second-largest coral reef, has gained traction.
Under a proposal outlined earlier this month, Belize has invited holders of its US$533m 4.94% 2034 bond to tender their notes at a 45% discount to their principal and at the same time pledged to earmark US$23.4m for a marine conservation endowment account.
The monies, which will be administered by non-profit body The Nature Conservancy, will solely support marine conservation projects off the Belize coast. A bondholder committee, holding close to 50% of the bonds by principal value, has already agreed to the deal.
The first closing date for tender offer was September 24. The offer will only go ahead if holders of more than 75% of the bonds by value agree to the transaction. The final closing date, after possible extensions, will be November 19.
If the super-majority is achieved then the deal will go ahead and all bondholders will be swept up under collective action clauses and see their notes bought back. The bondholder committee comprises Aberdeen Standard, Grantham, Mayo, Van Otterloo and Greylock Capital.
The buyback will be funded by The Nature Conservancy’s blue bonds programme. That allows private sector capital to refinance public debt of countries that sign up to its ocean conservation work. Credit Suisse is arranging the blue bonds financing and Potomac Group is advising TNC.
The US International Development Finance Corporation is also supporting the blue bond issue.
“The resulting cashflow savings will materially assist in the alleviation of the devastating consequences of the Covid-19 pandemic as well as help to achieve important environmental conservation goals,” Belize said in the offer document.
Belize’s GDP fell by 14% in 2020 as a result of the pandemic preventing most tourism, which contributes to a major part of its economy. Its overall debt to GDP rose by 30 percentage points to 127%. Carrying out the tender offer and clearing the bond debt will be a remarkable transformation.
And it seems as if the deal will be achieved, judging by the market price. Prior to the announcement the bonds were trading at 39.50 but have risen to 48.50 over the last week, indicating strong support.
“This has been one of the more unusual restructurings we’ve been a part of in a while because the vast majority of these countries never actually pay you in cash, they pay you in a new bond,” said one investor. “Generally when they’re in default they don’t have the cash to pay you anyway so that’s why this is a very unusual restructuring.”
The bondholder committee is being advised by law firm Orrick, Herrington & Sutcliffe. Belize is being advised by Citigroup, which is also dealer manager and ESG structuring adviser. Sovereign debt restructuring lawyer Lee Buchheit is advising the country as well.
Environmental measure
Buchheit, who advised numerous countries on restructurings when he was a partner at law firm Cleary Gottlieb, said the deal captured the global imperative to support climate change mitigation measures.
“Many institutional creditors complain about the lack of opportunities to demonstrate their commitment to ESG objectives. The Belize innovation is an attempt to harness that sentiment,” he said.
The investor agreed. “We’ve been trying to do debt-for-nature swaps forever. This is the first time we’ve been able to be a part of one in a debt restructuring context.”
He admitted that ultimately creditors “care about the economics” but the fact that TNC is issuing the blue bonds, as an investment-grade credit, also helped. TNC can also borrow more cheaply than Belize.
“They can help Belize, they can structure a deal with Belize where they can retire the debt and then use the arbitrage to help fund Nature Conservancy programmes,” he said.
Buchheit said the deal also allows investors to have greater control over how their money is spent, unlike conventional sovereign debt restructurings where “once debt relief has been extracted from a group of creditors, those lenders have little or no control”.
“By directing a portion of the savings into an approved conservation project in the debtor country, the lenders can at least ensure how those funds will be deployed,” he said.
(Additional reporting by Miluska Berrospi)
Corrected story: Corrects name in sixth paragraph