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Moodys downgrades Belize

Published:Monday | August 27, 2012 | 12:00 AM

Less than 48 hours after Standard & Poors downgraded Belize, another international credit rating agency has followed suit.

The Wall Street-based Moody's Investors Service said it lowered Belize's local currency bond and deposit ceilings to B2 from B1. The foreign currency country ceilings on bonds and deposits remain unchanged at Caa2.

It said the action reflects the Caribbean Community (CARICOM) countrys decision to renege on the 8.5 per cent August coupon payment.

The payment was for a US$547 million sovereign bond maturing in 2029 (the Superbond), after publicly budgeting for the US$23.5 million outlay in the 2012/13 budget.

The Superbond, which accounts for 48 per cent of total central government debt and 57 per cent of external debt, is itself the result of a distressed debt exchange completed in 2007, Moodys said.

The agency noted that the indicative scenarios released by the government on August 8 - a par bond and two discount bond options - resulted in bondholders absorbing losses of 70-80 per cent in net present value terms.

While this marks the beginning of a negotiation process between investors and the government, we expect the debt restructuring process to impose severe losses on investors, Moodys said.

The government's decision to trigger a credit event and force investors to take deep haircuts is a credit negative development that increases the odds of a protracted debt exchange process, it added.

Moodys said it expects the government will formally default following the expiration of a 30 day grace period in September, unless a restructuring agreement is reached before then.

It urged the Dean Barrow administration to secure the agreement of 75 per cent of investors to invoke the Superbond's collective action clause to compel remaining investors' participation in the exchange and reduce the risk of holdouts and litigation.

Standard & Poor's Ratings Services (S&P), another Wall Street-based international credit rating agency, on Wednesday lowered its foreign currency sovereign credit ratings on Belize to selective default.

CMC