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From ‘Super’ to ‘Blue’ bond

Updated: Jan 8, 2022

Via a debt-for-nature swap strategy, the Government of Belize may finally be on the brink of bringing the more than a decade long billion-dollar “SuperBond” saga to a close.

The government, via press release, announced that, subject to the agreement of all relevant parties, it intends to “purchase, redeem and cancel all of the outstanding Bonds,” a process that the authorities say will be financed with funding provided under The Nature Conservancy (TNC)’s Blue Bonds for Ocean Conservation Program (“Blue Bonds Financing” or “Blue Bonds”).

The release explained, “Belize has reached agreement in principle regarding the key commercial terms of the Blue Bonds Financing with TNC, and with Credit Suisse Group AG and/or its affiliated entities, which is arranging the Blue Bonds Financing.”

Fundamentally, the Blue Bonds would work similar to the more well-known “green bonds”, except that the former is aimed at marine conservation efforts. The scheme could be summarized in three general steps: (1) Governments commit to protecting close to 30% of their oceans, (2) the TNC works along with local stakeholders to identify “activities that combine conservation and sustainable economic opportunities”, and (3) TNC helps to refinance participating countries’ national debt.

The national debt—which in Belize’s case is the US Dollar Bond 2034 (“the SuperBond”) that accounts for approximately 40% of the country’s total external debt of about US$ 1.5 billion as of June 2021—would be purchased at “a discount” and the savings generated would be directed towards marine conservation and sustainable development efforts.

The TNC describes the Blue Bonds as a “win-win-win”: “The national governments get significant financial savings to invest in natural resources that support their economies; local communities, in turn, see their livelihoods and cultural heritage protected; and the donors who provided the original seed funding realize incredible leverage on their philanthropic investment—a multiplier of up to 40 times.”

Thus far, according to the government, the Committee of Institutional Investors (“the Committee”), which represents 50% of the holders of the outstanding US$530 million principal amount of the “superbond”, have agreed in principle with the terms. However, for the process to move forward, 75% of the bondholders must agree to the terms.

Should the deal go through, the release explains that “Eligible holders who tender their Bonds prior to the expiration date of the Offer will receive…a cash payment in an amount equal to $550 per $1,000 of the outstanding principal of the Bonds as of September 1, 2021.”

Data from the Central Bank of Belize (CBB) up to June 2021 indicate that Belize’s total debt (domestic and external) is approximately US$2.121 billion (BZ$4.243 billion). The cancellation of the bond would help to reduce this figure by close to 25%, a significant reduction to Belize’s overall debt.

The present announcement is a significant development. As readers may recall, earlier in the year, the bondholders had indicated that they were not keen on engaging in any restructuring talks unless Belize first conceded to an International Monetary Fund (IMF) program. The bondholders committee had gone on record to say: “The Committee respectfully reiterates that the implementation of Belize’s economic policies would be more durably addressed in the context of an IMF-supported programme.”

In a May 2021 statement, the Government of Belize wrote that the bondholders’ representatives had “indicated that the meeting was unlikely to be worthwhile unless Belize agreed in advance to accept a full IMF program (a step that the Belize authorities had previously said they were not planning to take).” For their part, the Committee had likewise issued a release to explain their reasoning for their in-principle agreement with the government. Their position was based on three considerations: “(1) the uncertain prospects of Belize’s economy, including due to the COVID-19 pandemic and other external shocks; (2) A cash repurchase of the Bonds (in contrast to a more conventional bond exchange) reflected the Government’s expressed intent to satisfy, for the foreseeable future, its external financing requirements either from bilateral and multilateral creditors or through loan financings from commercial sources (such as the one being arranged by TNC to fund the Offer), and (3) As an integral part of this transaction, Belize has committed to allocate a significant amount of money toward environmental conservation measures.”

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