G’da reach debt servicing agreement

Creditors of Grenada with $262 million of defaulted bonds have agreed to a debt restructuring that will leave them half of the original face value.

The Eastern Caribbean island with a population of 110,000 will give the bondholders $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 U.S., U.K. 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 $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 $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.

Following is the full text of a release issued by the Keith Mitchell-led government in St. George’s on the debt deal:

The Government of Grenada has reached an in principle agreement with the Steering Committee of Grenada Bondholders on the key financial terms that will apply to the forthcoming restructuring of its U.S. and E.C. Dollar Bonds due 2025.

The key financial terms that have been agreed in principle include an overall principal reduction of 50%, to be phased in, in two stages.

The new bonds to be issued in exchange for the U.S. and E.C. Dollar Bonds due 2025 will carry a coupon of 7.0% per annum and will have an overall tenor of 15 years, with the principal balance repayable in 29 equal and semi-annual installments commencing March 2016 and ending March 2030. Past due and accrued interest is to be capitalised in full.

Half of the agreed principal reduction will take effect up-front, with the remaining half to take effect upon the successful completion of the sixth review of Grenada’s existing Extended Credit Facility (ECF) arrangement with the International Monetary Fund.

As part of the agreement, bondholders will receive a portion of revenues that may be generated by Grenada’s Citizenship by Investment programme after the expiry of the ECF. Grenada and the Committee are also considering the inclusion of a ‘hurricane clause’ in the new instruments.

Both Grenada and the Committee are now discussing the documentation that will govern the new bonds that will be offered by Grenada in exchange for the existing instruments.

Once the documentation has been finalised, Grenada will launch an exchange offer to implement the restructuring, most likely during the course of the second quarter of 2015. Further information regarding the terms of the restructuring will become available at that point.

(1) Total debt owed by Grenada to United States (US) and Eastern Caribbean (EC) bondholders on Notes due 2025 is USD262M (ECD707.4M).

(2) A 50% haircut will mean a reduction of USD131M (ECD353.7M) which is 19% of Grenada’s Gross Domestic Product (GDP).

(3) The bondholders comprise of institutional investors in the United States of America (USA), United Kingdom (UK) and the Caribbean.

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