## 1. Public debt structure 2007/08-17/18 ## Source details **Canonical URL:** [1. Public debt structure 2007/08-17/18](https://www.imf.org/-/media/files/publications/wp/2020/english/wpiea2020034-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/wp/2020/english/wpiea2020034-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/wp/2020/english/wpiea2020034-print-pdf.pdf.json) --- ### Introduction - In 2018 and 2019, Barbados restructured its public debt for the first time in the country’s history. - Debt restructuring announcement: June 1, 2018. - Agreement with domestic creditors announced: October 14, 2018. - Agreement with external creditor committee announced: October 18, 2019. - IMF-supported program approved by the IMF’s Executive Board: October 1, 2018. - Restructuring included a natural disaster clause in most newly issued debt instruments. ### Macroeconomic and fiscal context (FY2007/08–FY2017/18) - Overall fiscal balance: on average in deficit at about 8 percent of GDP. - Interest expenditure: averaging 6½ percent of GDP. - Transfers to state-owned enterprises (SOEs): averaging 7½ percent of GDP. - Public debt (central government debt, arrears, and SOE debt guaranteed by the central government) increased from 77 to 158 percent of GDP between FY2007/08 and FY2017/18. - Gross financing needs increased from 16 to 51 percent of GDP over the period. - IMF assessment (2017 Article IV): public debt unsustainable (IMF 2018a: p. 1 and 4). ### Credit rating deterioration and reserves - Credit rating path: from Standard and Poor’s BBB+ (investment grade) on the eve of the global financial crisis to Selective Default on June 6, 2018. - Access to international financing: no access to international capital market after the 2013/14 Credit Suisse facility. - International reserves: decreased from US$850 million to about US$220 million between 2007 and 2017. - Import coverage change: from 4½ months to about 5 weeks. - IMF reserve adequacy (ARA) metric: from about 140 to 39 percent. ### Restructuring perimeter and initial aggregate figures - Definition of public debt used by authorities: all debt issued by the central government, all arrears incurred by the central government, and all debt issued by SOEs and guaranteed by the central government. - Public debt at the start of the restructuring: 158.3 percent of FY GDP. - Debt targeted for restructuring: about 147 percent of FY GDP, including claims held by public sector agencies such as the Central Bank of Barbados (CBB) and the National Insurance Scheme (NIS). - Exclusions from perimeter: bilateral external debt and debt held by multilaterals. ### Process and sequencing - Two main creditor committees formed: one comprising the five domestic banks, and another representing the main external creditors. - Domestic focus initially due to bulk of debt being domestic and urgency to restore fiscal and financial stability. - External debt service halted immediately after June 1 announcement; government continued to pay interest on domestic debt initially. - Domestic exchange offer for Barbados dollar-denominated debt launched: September 7, 2018. - Launch of domestic restructuring was a prior action for EFF approval. - EFF approval date: October 1, 2018. ### Domestic debt restructuring and collective action mechanism - Parliament retrofitted a collective action mechanism into domestic debt: adopted September 2018. - Retrofitted mechanism summary: - Creditors holding 75 percent of aggregate outstanding principal amount of “specified debt instruments” that submit a voting form can, if they accept a restructuring proposal, make the restructuring legally binding for all holders. - According to paragraph 5(1) of the “Debt holder (approval of debt restructuring) Act 2018-24”, the proposal is deemed accepted by all holders if holders representing at least 50 percent of aggregate outstanding principal submit a voting form, and holders representing at least 75 percent of the aggregate outstanding principal for which a voting form is received vote in favor. - Agreement with bulk of domestic creditors (including all banks and insurers) announced: October 14, 2018. - Domestic transaction closed: November 19, 2018. - The retrofitted collective action mechanism was used to secure 100 percent participation in the domestic debt exchange. ### Bilateral debt - Debt to bilateral creditors on eve of restructuring: 2 percent of GDP. - Defaulted on a commercial loan guaranteed by the government of Canada (worth just over 1 percent of GDP). - Remained current on a loan provided by the government of China (just under 1 percent of GDP). - Guarantee called by Canada: September 21, 2108 (IMF 2018b: p. 78). - Canada’s consent conditions at IMF Executive Board meeting (October 1, 2018): - (i) Barbados repaid accumulated arrears to Canada; and - (ii) if the loan guaranteed by the government of Canada were restructured, Barbados would seek to restructure other bilateral debt and debt with creditor sovereign guarantees on comparable terms. - Government decision in early 2019: not to pursue restructuring of bilateral debt and resumed payments on the Canada loan (IMF 2019a: p. 12). ### External debt restructuring: key features and outcomes - External debt to private creditors on eve of restructuring: about 16 percent of GDP. - External instruments included: Eurobonds and a Credit Suisse loan facility. - Credit Suisse facility details: - Originally arranged late 2013 for US$150 million (about 3 percent of GDP); increased to US$225 million in 2014. - Original maturity: 5 years; extended to 2019 in 2016. - Interest rate linked to Barbados’ credit rating; reached 12 percent at end-2017. - Eurobond coupons: between 6½ and 8 percent (most recent issued in 2010). - Negotiation dynamics: - Creditors’ initial (September 2018) proposal: a ten year instrument with a single bullet repayment, at 8.25 percent (the average level of the outstanding external debt instruments), with no haircut. - Government’s initial proposal: very low (but gradually stepping up) interest rates and much longer maturity (25 years). - Investor loss under creditors’ proposal: 29 percent (using 12 percent discount rate). - Investor loss under government’s initial proposal: 59 percent (using 12 percent discount rate). - Gap reduced from 30 percentage points to 5 percentage points by June 2019. - IMF Executive Board: concluded first review of EFF-supported program on June 24, 2019. - Agreement announced: October 18, 2019. - Agreed external restructuring terms: - 26 percent haircut on original principal and past due and accrued interest. - New long-term debt instrument with a 10-year maturity, a 5-year grace period, and a 6.5 percent interest rate. - US$40 million re-payment in the period 2019-2021, comprising US$7.5 million in cash and US$32.5 million in short-term bonds maturing in 2021 bearing a 6.5 percent coupon. - Creditor participation results (press release November 23, 2019): - Participation well above the 75 percent threshold for the three outstanding Eurobonds: 93 percent on average (88, 92, and 96 percent for the three instruments). - Participation in the Credit Suisse facility: 100 percent. - Transaction closed with full creditor participation: December 11, 2019. - Rating action: Standard and Poor’s upgraded Barbados’ foreign currency sovereign credit rating from Selective Default to B- on December 11, 2019. ### Natural disaster clause - Barbados used the restructuring to strengthen protection against extreme weather and earthquakes in addition to CCRIF insurance. - Natural disaster clause features: - Allows capitalization of interest and deferral of scheduled amortization falling due over a two-year period following occurrence of a major natural disaster. - Trigger for new domestic debt: a payout above US$5 million by the CCRIF. - New external debt instruments link trigger thresholds to CCRIF payouts, with differentiated thresholds depending on type of natural disaster (hurricane, flooding or earthquake). ### Box 1. Credit Suisse Facility—Use of Exit Consents - Exit consents, while known in bond restructurings, have been less frequently used in sovereign loan restructurings. - Barbados employed exit consents in its sovereign loan restructuring, resulting in all of the Credit Suisse loans being exchanged for the new bonds. - The exchange offer was accompanied by a consent solicitation that leveraged the power of a majority of creditors to amend the original credit agreement to encourage participation in the exchange. - The structure of the original credit agreement—drafted for syndication—allowed majority action to amend the agreement; typical bilateral loan agreements would not permit majority amendment. - The original credit agreement permitted amendment of most provisions with a 50.01% majority of creditors. - Certain provisions (for example, the amount of principal) were exempted and required unanimous consent of all lenders. - Under the November 5, 2019 consent solicitation, creditors simultaneously agreed to the exchange and consented to the amendment or waiver of many provisions of the credit agreement. - Amendments effected by majority consent included removal of all affirmative and negative covenants and most events of default—these changes required only majority consent. - The contemplated amendments were structured to leave potential holdouts with a less valuable instrument by stripping creditors of critical protections and enforcement powers. - A crucial narrowing: Barbados’ original submission to the jurisdiction of New York courts and waiver of sovereign immunity for any lawsuit arising out of the credit agreement was drastically narrowed to apply only to lawsuits brought by Credit Suisse as administrative agent—actions by individual creditors were excluded. - Without the jurisdictional submission and waiver available to individual creditors, litigation by holdout creditors would face serious obstacles in enforcing claims arising from default under the credit agreement. - The effectiveness of exit consents in this case depended on specific contract design features that enabled majority amendment in a syndicated loan context. - The technique exploited differences between syndicated loan agreements and typical bilateral loan agreements, underscoring that contract form and governing provisions materially affect restructuring options and creditor rights. - The approach reduced litigation risk from individual creditors by concentrating enforcement rights with the administrative agent. *Source: wpiea2020034-print-pdf - 1. Public debt structure 2007/08-17/18 (excerpt).* ### 1. Public debt structure 2007/08-17/18 _______________________________________________ 8 ### 1. Public debt structure 2007/08-17/18 ### Introduction - In 2018 and 2019, Barbados restructured its public debt for the first time in the country’s history. - The debt restructuring announcement: June 1, 2018. - Agreement with domestic creditors announced: October 14, 2018. - Agreement with external creditor committee announced: October 18, 2019. - IMF-supported program approved by the IMF’s Executive Board: October 1, 2018. - Restructuring included a natural disaster clause in most newly issued debt instruments. ### Macroeconomic and fiscal context (FY2007/08–FY2017/18) - Overall fiscal balance: on average in deficit at about 8 percent of GDP. - Interest expenditure: averaging 6½ percent of GDP. - Transfers to state-owned enterprises (SOEs): averaging 7½ percent of GDP. - Public debt (central government debt, arrears, and SOE debt guaranteed by the central government) increased from 77 to 158 percent of GDP between FY2007/08 and FY2017/18. - Gross financing needs increased from 16 to 51 percent of GDP over the period. - IMF assessment (2017 Article IV): public debt unsustainable (IMF 2018a: p. 1 and 4). ### Credit rating deterioration and reserves - Credit rating path: from Standard and Poor’s BBB+ (investment grade) on the eve of the global financial crisis to Selective Default on June 6, 2018. - Access to international financing: no access to international capital market after the 2013/14 Credit Suisse facility. - International reserves: decreased from US$850 million to about US$220 million between 2007 and 2017. - Import coverage change: from 4½ months to about 5 weeks. - IMF reserve adequacy (ARA) metric: from about 140 to 39 percent. ### Restructuring perimeter and initial aggregate figures - Definition of public debt used by authorities: all debt issued by the central government, all arrears incurred by the central government, and all debt issued by SOEs and guaranteed by the central government. - Public debt at the start of the restructuring: 158.3 percent of FY GDP. - Debt targeted for restructuring: about 147 percent of FY GDP, including claims held by public sector agencies such as the Central Bank of Barbados (CBB) and the National Insurance Scheme (NIS). - Exclusions from perimeter: bilateral external debt and debt held by multilaterals. ### Process and sequencing - Two main creditor committees formed: one comprising the five domestic banks, and another representing the main external creditors. - Domestic focus initially due to bulk of debt being domestic and urgency to restore fiscal and financial stability. - External debt service halted immediately after June 1 announcement; government continued to pay interest on domestic debt initially. - Domestic exchange offer for Barbados dollar-denominated debt launched: September 7, 2018. - Launch of domestic restructuring was a prior action for EFF approval. - EFF approval date: October 1, 2018. ### Domestic debt restructuring and collective action mechanism - Parliament retrofitted a collective action mechanism into domestic debt: adopted September 2018. - Retrofitted mechanism summary: - Creditors holding 75 percent of aggregate outstanding principal amount of “specified debt instruments” that submit a voting form can, if they accept a restructuring proposal, make the restructuring legally binding for all holders. - According to paragraph 5(1) of the “Debt holder (approval of debt restructuring) Act 2018-24”, the proposal is deemed accepted by all holders if holders representing at least 50 percent of aggregate outstanding principal submit a voting form, and holders representing at least 75 percent of the aggregate outstanding principal for which a voting form is received vote in favor. - Agreement with bulk of domestic creditors (including all banks and insurers) announced: October 14, 2018. - Domestic transaction closed: November 19, 2018. - The retrofitted collective action mechanism was used to secure 100 percent participation in the domestic debt exchange. ### Bilateral debt - Debt to bilateral creditors on eve of restructuring: 2 percent of GDP. - Defaulted on a commercial loan guaranteed by the government of Canada (worth just over 1 percent of GDP). - Remained current on a loan provided by the government of China (just under 1 percent of GDP). - Guarantee called by Canada: September 21, 2108 (IMF 2018b: p. 78) — note: date as stated in source. - Canada’s consent conditions at IMF Executive Board meeting (October 1, 2018): - (i) Barbados repaid accumulated arrears to Canada; and - (ii) if the loan guaranteed by the government of Canada were restructured, Barbados would seek to restructure other bilateral debt and debt with creditor sovereign guarantees on comparable terms. - Government decision in early 2019: not to pursue restructuring of bilateral debt and resumed payments on the Canada loan (IMF 2019a: p. 12). ### External debt restructuring: key features and outcomes - External debt to private creditors on eve of restructuring: about 16 percent of GDP. - External instruments included: Eurobonds and a Credit Suisse loan facility. - Credit Suisse facility details: - Originally arranged late 2013 for US$150 million (about 3 percent of GDP); increased to US$225 million in 2014. - Original maturity: 5 years; extended to 2019 in 2016. - Interest rate linked to Barbados’ credit rating; reached 12 percent at end-2017. - Eurobond coupons: between 6½ and 8 percent (most recent issued in 2010). - Negotiation dynamics: - Creditors’ initial (September 2018) proposal: a ten year instrument with a single bullet repayment, at 8.25 percent (the average level of the outstanding external debt instruments), with no haircut. - Government’s initial proposal: very low (but gradually stepping up) interest rates and much longer maturity (25 years). - Investor loss under creditors’ proposal: 29 percent (using 12 percent discount rate). - Investor loss under government’s initial proposal: 59 percent (using 12 percent discount rate). - Gap reduced from 30 percentage points to 5 percentage points by June 2019. - IMF Executive Board: concluded first review of EFF-supported program on June 24, 2019. - Agreement announced: October 18, 2019. - Agreed external restructuring terms: - 26 percent haircut on original principal and past due and accrued interest. - New long-term debt instrument with a 10-year maturity, a 5-year grace period, and a 6.5 percent interest rate. - US$40 million re-payment in the period 2019-2021, comprising US$7.5 million in cash and US$32.5 million in short-term bonds maturing in 2021 bearing a 6.5 percent coupon. - Creditor participation results (press release November 23, 2019): - Participation well above the 75 percent threshold for the three outstanding Eurobonds: 93 percent on average (88, 92, and 96 percent for the three instruments). - Participation in the Credit Suisse facility: 100 percent. - Transaction closed with full creditor participation: December 11, 2019. - Rating action: Standard and Poor’s upgraded Barbados’ foreign currency sovereign credit rating from Selective Default to B- on December 11, 2019. ### Natural disaster clause - Barbados used the restructuring to strengthen protection against extreme weather and earthquakes in addition to CCRIF insurance. - Natural disaster clause features: - Allows capitalization of interest and deferral of scheduled amortization falling due over a two-year period following occurrence of a major natural disaster. - Trigger for new domestic debt: a payout above US$5 million by the CCRIF. - New external debt instruments link trigger thresholds to CCRIF payouts, with differentiated thresholds depending on type of natural disaster (hurricane, flooding or earthquake). *Source: wpiea2020034-print-pdf - 1. Public debt structure 2007/08-17/18 (excerpt).* ### Box 1. Credit Suisse Facility—Use of Exit Consents ### Box 1. Credit Suisse Facility—Use of Exit Consents ### Description of the mechanism and context - Exit consents, while known in bond restructurings, have been less frequently used in sovereign loan restructurings. - Barbados employed exit consents in its sovereign loan restructuring, resulting in all of the Credit Suisse loans being exchanged for the new bonds. - The exchange offer was accompanied by a consent solicitation that leveraged the power of a majority of creditors to amend the original credit agreement to encourage participation in the exchange. - The structure of the original credit agreement—drafted for syndication—allowed majority action to amend the agreement; typical bilateral loan agreements would not permit majority amendment. ### Amendment threshold and scope - The original credit agreement permitted amendment of most provisions with a 50.01% majority of creditors. - Certain provisions (for example, the amount of principal) were exempted and required unanimous consent of all lenders. - Under the November 5, 2019 consent solicitation, creditors simultaneously agreed to the exchange and consented to the amendment or waiver of many provisions of the credit agreement. - Amendments effected by majority consent included removal of all affirmative and negative covenants and most events of default—these changes required only majority consent. ### Strategic effect on potential holdouts - The contemplated amendments were structured to leave potential holdouts with a less valuable instrument by stripping creditors of critical protections and enforcement powers. - A crucial narrowing: Barbados’ original submission to the jurisdiction of New York courts and waiver of sovereign immunity for any lawsuit arising out of the credit agreement was drastically narrowed to apply only to lawsuits brought by Credit Suisse as administrative agent—actions by individual creditors were excluded. - Without the jurisdictional submission and waiver available to individual creditors, litigation by holdout creditors would face serious obstacles in enforcing claims arising from default under the credit agreement. - This use of exit consents and the narrowing of jurisdictional access helped secure full participation in the exchange. ### Key legal and practical observations - The effectiveness of exit consents in this case depended on specific contract design features that enabled majority amendment in a syndicated loan context. - The technique exploited differences between syndicated loan agreements and typical bilateral loan agreements, underscoring that contract form and governing provisions materially affect restructuring options and creditor rights. - The approach reduced litigation risk from individual creditors by concentrating enforcement rights with the administrative agent. *Source: Box 1. Credit Suisse Facility—Use of Exit Consents (excerpt).* --- _Source: https://www.imf.org/-/media/files/publications/wp/2020/english/wpiea2020034-print-pdf.pdf_