REFILE-Creditors dig in for battle of Belize

By Joan Magee and Christopher Spink

Aug 24 (IFR) - The restructuring of Belize's 2029 "superbond" may become a drawn-out battle, as creditors keep the country waiting for a formal response to proposals that could see them take a haircut of up to 80% on the net present value of their holdings.

"We are working through our analysis and expect to share our views with the government within two to three weeks," said Mike Gerrard, managing director of BroadSpan Capital, which is advising a committee of creditors that claims to have a majority interest in the US$544m instrument.

A US$23m coupon payment was missed last Monday, days after Prime Minister Dean Barrow said the country "simply cannot afford ". That comment suggested the sum will not be honored during the grace period, which expires on September 19.

It is also unlikely an acceptable offer will be put to creditors by that date.

"We still have hopes it will be a 2012 restructuring, but that will need accommodation from each side," said Sebastian Espinosa, managing director of White Oak Advisory, which is advising the government.

At the moment, the two sides appear to be far apart. The situation is exacerbated by additional liabilities, estimated by the government at US$300m, in the form of compensation due to former shareholders of Belize's national electricity and telecoms companies, which were compulsorily nationalized between 2009 and 2011.

No settlement has yet been reached with these claimants, and the government wants to roll their claims into a wider debt restructuring.

Some progress had been made with Fortis, which used to own 70% of Belize Electricity. However, negotiations with former shareholders of Belize Telemedia, mostly connected to Michael Ashcroft, are more drawn-out.

Ashcroft is a former deputy chairman of the British Conservative party and one of Belize's richest residents. The former Belize Telemedia shareholders, who are being advised by New State, say they should be paid up to US$300m, while the government has valued the business at Bz$72.3m (US$36.2m).

If a mid-point is taken between the two sides' valuations, then the additional liabilities related to both nationalized companies will add as much as 20% of Belize's GDP to its debts. Belize has indicated it would like to pay the compensation in any new bonds resulting from the restructuring of the superbond.

"It is clear to us that ignoring the compensation outstanding to former shareholders [of the nationalized companies] will not serve the interests of Belize or its bondholders," said Mark Espat, who heads the debt review team in the Belize government.

"Even so, our overriding objective has been to agree with bondholders a transparent framework for addressing these liabilities, in a way that is fully cognizant of cashflow effects."

Lee Buchheit, partner at law firm Cleary Gottlieb, which is advising the government, acknowledged that the issues surrounding the nationalized entities make the restructuring "a little different" from normal deals, but added: "A superbond restructuring is not contingent on settlement of the compensation issues."

THREE OPTIONS

Belize has outlined three options to replace the superbond. One is a 2% bond maturing in 2062 with no principal reduction and a 15-year grace period. The others involve a 45% reduction of principal but a 2042 maturity. One has no grace period and a step-up coupon from 1% to 2% in 2019 and 4% in 2026, and the other a 3.5% coupon after a five-year grace period.

"This is a case of unwillingness to pay [the coupon]," said Arturo Porzecanski, international finance professor at American University in Washington.

"The government is trying to get the bondholders to forgive enough principal and interest so they will be able to pay for the nationalizations they have undertaken."

The 2029 bonds are currently trading at 34-37 cents on the dollar, suggesting the market believes that Belize will improve the terms by a significant amount. But one senior portfolio manager was skeptical, saying the final offer could be nearer 20 cents on the dollar.

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