Debt Restructuring

Debt restructuring can take a variety of forms, including reductions in coupon rates, maturity extensions, reductions of outstanding principal, or some combination of these options. The choice of method can be influenced by several factors including the scale of the problem, the speed of adjustment and the size and nature of the fiscal adjustment. Factors to be considered include safeguarding the soundness of the financial system and examining the impact on small savers.

On June 1, 2018 the Government of Barbados announced the suspension of interest and amortisation payments due on its debts owed to external commercial creditors. It is envisaged that in addition to foreign currency denominated external debt, domestic obligations of the central government and guaranteed debt, inclusive of treasury bills, treasury notes, debentures, bank loans and commercial bonds, which are serviced directly out of the public purse, will also be subject to the restructuring exercise.

This development resulted in varied responses in the domestic and international investor community and on June 15, 2018, the international rating agency Standard & Poor’s (S&P) reduced the country’s long-term foreign currency rating from (CCC+) to Selective Default (SD), as is customary when the process for a sovereign debt restructuring commences.  

The restructuring of the external debt immediately impacted the trading price of Government of Barbados’ international bonds, which fell from an average of US$87 to US$47 and from US$91.8 to US$46.8 on its medium-term and long-term instruments, respectively. The secondary trading of Government securities domestically also reflected lower prices before a temporary suspension of trading was announced by the Financial Services Commission in early July.

Trading was subsequently permitted to resume from July 23, 2018.