Standard and Poors Downgrades Belize Again

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Belize Foreign Currency Ratings Lowered To ‘SD/SD’ From ‘CC/C’ Following Announcement of Debt Exchange

Overview

–              “On Aug. 10, 2020, the government of Belize announced it had reached an agreement with the bondholders of its U.S. dollar bonds due in 2034 on amendments to the terms of such bonds.

–              Proposed amendments center on the capitalization of the next three interest payments on the bond. We consider this a distressed exchange offer given the nature of the request amid stressed financing conditions.

–              We therefore are lowering our long-term foreign currency sovereign credit rating on Belize to selective default (‘SD’) from ‘CC’. We are also lowering our issue rating on the exchanged foreign currency bond (due in 2034) to ‘D’.

–              Upon completion of the bond restructuring, we will raise the ratings based on our assessment of Belize’s post-exchange creditworthiness.

 

Rating Action

On Aug. 12, 2020, S&P Global Ratings lowered its long-term foreign currency sovereign credit rating on Belize to selective default (‘SD’) from ‘CC’. In addition, we lowered the short-term foreign currency sovereign rating to ‘SD’ from ‘C’.

We also lowered our rating on the bonds included in the sovereign’s debt exchange to ‘D’ from ‘CC’ (foreign currency bonds due in 2034).

At the same time, we affirmed the ‘CC’ long-term local currency sovereign credit rating and the ‘C’ short-term local currency sovereign credit rating. We also removed the long-term foreign and local currency ratings from CreditWatch with negative implications, where we had placed them on June 30, 2020. The outlook on the long-term local currency rating is stable.

Our transfer and convertibility (T&C) assessment remains unchanged at ‘CC’.”

PRIMARY CREDIT ANALYST/ Omar A De la Torre Ponce De Leon, Mexico City

(52) 55-5081-2870 / [email protected]

SECONDARY CONTACT/ Livia Honsel, Mexico City, + 52 55 5081 2876 / [email protected]

Rationale

“The hit from the COVID-19 pandemic has exacerbated the fragility of the Belizean economy. Liquidity pressures have mounted as a result of the health care and economic crisis. Due to rapid deterioration of global economic conditions and lockdown measures, we expect a sharp decline in tourism in 2020. The tourism sector accounts for 10%-15% of Belize’s GDP and around 60% of the country’s foreign exchange earnings.

On Aug. 10, 2020, the Belize government announced the results of its solicitation of consent of holders of Belize’s U.S. dollar bonds due 2034 to defer and capitalize quarterly interest payments falling due from Aug. 20, 2020, through Feb. 20, 2021. Holders representing 82.0% of outstanding bonds have consented to the amendments to the terms of the bonds. The collective action clauses relating to the U.S. dollar bonds specify the voting threshold at 75% of bondholders. Above this threshold, the proposed amendments become binding to all holders of such bonds. According to the proposed amendments, interest due on the interest payment dates after Feb. 20, 2021, and the final maturity date of the bonds will not be affected. The government expects that all conditions precedent to the effectiveness of the amendments will be met around mid-August.

Once the restructuring process is completed, we are likely to review the ‘SD’ foreign currency rating on the sovereign and ‘D’ rating on the 2034 bonds. We will consider raising the ratings once the new terms and conditions of the 2034 bonds come into effect.

We believe the government is less likely to default on its local currency-denominated debt, and it has made no mention of its intention to restructure this debt.

Given already high debt, low international reserves, and a weak economy, Belize has limited scope to effectively counter the pandemic shock and maintain timely debt service. In addition, Belize’s creditworthiness is constrained by institutional weaknesses that include a track record of poor capability to maintain sustainable public finances across administrations. Despite a commitment to reduce the fiscal imbalances under the terms of the March 2017 debt restructuring, high debt remains a difficulty for the government and has long been an obstacle to economic prosperity.

Belize also has a track record of default when its fiscal position comes under pressure. The government underwent three episodes of debt restructuring between 2006 and 2017.”