In The Aftermath Of The Greek Blue Light Precedent: Belize Demands Half Off On Its Debt... Or Else

Tyler Durden's picture

"Greece set a precedent for 'Here's what you're going to get, take it or leave it'" is how the WSJ summarizes an analyst's 'shocked' thoughts on the growing game of 'call my bluff' being played among beggars being choosers. Belize, a Central American nation with an economy the size of Pine Bluff, Arkansas, is surprise surprise running out of money to pay its debts and is insisting that creditors forgive 45% of what they are owed - OR allow it to delay any debt payments for 15 years (yes, seriously, read that again) - leaving a default on the country's $543.8mm almost inevitable.

Three things stand out to us: 1) the nation's government simply posted a note on its website that it would be 'skipping a payment' as opposed to telling creditors directly; 2) none other than 'Long GGBs are the slam-dunk trade-of-the-year' Greylock Capital are "mystified" that yet another trade has gone pear-shaped adding that they are "sure every country could benefit from not paying their debt but this isn't the way to do it!"; and 3) this would be one of the worst restructuring terms ever as the "Greek effect" could inspire other countries to pursue restructurings on more favorable terms - especially given that: "Even if you don't need a restructuring you can force one upon bondholders because it's so hard to recover money from a sovereign who won't pay,"

 

With the Belize 2029s trading at $37.375 (against a $55 'offer' of restructuring from the government), the market is obviously saying that a restructuring event will occur and be somewhat rapidly followed by a REdefault...

 

From the WSJ:

...

 

Prime Minister Dean Barrow in a March television interview said the global 2029 bonds, issued by a different administration, had come at too high a price.

 

The bond's interest rate rises over the course of its life, reaching 8.5% for the August payment, from 4.25% in 2007, when several loans were consolidated into a single bond.

 

...[preventing] the current government from using "our recurring revenue to do more for the people, to push employment and to push job creation,"

 

... triggered a sharp selloff in Belize's bonds, driving yields higher. The yield peaked at 30.2% after the restructuring proposal earlier this month, from 16% at the start of the year. The bond yielded 26.3% on Friday.

 

Roberto Sanchez-Dahl, an emerging-market portfolio manager with Federated Investors, said...

 

"We thought that the probability of the government being bond friendly was going to be low, given [Barrow's] rhetoric of pushing against foreign holders [that] resonated very well domestically," Mr. Sanchez-Dahl said. "They would definitely not give priority to foreign investors, or put them in front of domestic needs."