The Barbados External Creditor Committee, a investors’ group which holds about 55% of Barbados’ US$1.5 Billion in foreign debt, and includes regional and international financial institutions, pension funds and central banks, as well as individual bondholders has accused Barbados of ignoring its so-called good faith proposals re-negotiating its foreign debt.
In a terse press release issued on Friday the Committee said Barbados had ignored a revised proposal that it had “in good faith” on 17 May 2019. The lobby group said that, instead, the Government of Barbados had released so-called “restructuring scenarios” that ignored its suggestions during negotiations over the past several months.
As a result, the Committee said it could not “take seriously” Barbados’ commitment to negotiate “in a consensual manner” a new payment plan for its external commercial default, and would not support or recommend to its members either of the two options which Barbados had recently put forward informally. It said the government need to “reengage in good faith negotiations.”
Under the first option or so-called “scenario, the government would give creditors new bonds worth two-thirds of their original principal, with interest payments made twice yearly, at 3.5 per cent in the first two years, and 7.5 per cent per annum until the 2033 maturity date.
In the second “scenario, outlined in Friday’s Nation newspaper by Shawn Cumberbatch, the bondholders would receive the full face value of the restructured bonds but interest payments would be fixed at 3.5 per cent per annum until 2044.
In its update to creditors, the government of Barbados defended the offers saying “Both scenarios are at the limits of what is compatible with the debt sustainability framework that underpins the EFF (Extended Fund Facility,” that is, the IMF loan.
The investor group accused the government of misrepresenting it, stating that “Contrary to what has been stated by the Authorities in the ‘Creditor Update’ released on 11 June 2019, the Committee’s last financial proposal was designed to meet all of the Authorities' objectives…”
It said this included giving Barbados the ability to reach the 60% debt-to-GDP target by 2033 under the IMF loan - however, with a one-year margin of error - while providing greater cash flow relief for the creditors.
The Committee also claimed that its proposal would have improved Barbados’ ability to re-access the international capital markets over time.
The Committee added that Barbados’ statements regarding maintaining inter-creditor equity were irrelevant, saying in effect that comparing the domestic debt agreement finalized in late 2018 to the terms presented to external commercial creditors was essentially like trying to compare apples with oranges.
The investor group said “Domestic investors were subject to a local law regime designed to force the implementation of that restructuring,” noting that this power did not apply to “the New York and UK law instruments represented by the Committee.”
It also noted that over half of the domestic debt re-negotiated was held by state-owned entities of Barbados, and Barbados is able to offer “additional accommodations to private sector domestic investors that by nature are not available to international investors.”
Despite its tough response, the investors’ committee said it wanted to continue to have “good faith discussions” in hopes of reaching an agreement that would benefit all parties involved.
But it issued a warning that if Barbados tried to impose a “unilateral offer” based on either of the now-rejected “scenarios” this would “likely place economic reform efforts at risk, to the detriment of the country’s financial stability and well-being.”
The committee is advised by Newstate Partners LLP and Arnold & Porter.