Rating upgrade for Barbados

Yesterday the Caribbean Information and Credit Rating Services Limited (CariCRIS) announced it has raised its foreign currency rating of the Government of Barbados while also giving the country a stable outlook.

In taking the action, the regional rating agency said it has removed its CariD (Default) Regional Scale Foreign Currency Rating of the Government of Barbados (GOB) and has assigned a rating of a CariBB-, with a stable outlook.

As such, this rating action places the Regional Scale Foreign Currency Rating one notch below our current GOB Regional Scale Local Currency rating.

“Our decision to upgrade the rating on the GOB’s foreign currency debt is driven by the successful closure of the exchange offer for external commercial debt,” it explained in a news release.

“The GOB has indicated that the closure of the transaction allows it to immediately reduce its outstanding external debt principal by 25 per cent and accrued interest by 35 per cent, and to meet its debt-to-GDP target of 60 percent by 2033/34,” CariCRIS said.

In total, the GOB immediately benefits from the cancellation of just over (Bds$400 million) US $200 million in debt and would generate approximately US $500 million in cash flow savings over the next five years.

CariCRIS is of the view that repayment of the restructured foreign currency debt should not negatively impact in any material way the GOB’s foreign currency reserves nor its primary balance.

According to the agency, “We are informed that the new bonds consist of (i) a US$547 million, 6.5% semi-annual (April 1 and October 1), 10-year bond, due October 1, 2029, and (ii) a US $32.5 million, 6.5% semi-annual (April 1 and October 1), 3-year bond, due February 1, 2021. The latter bond would be used to settle interest that has accrued since June 1, 2018 when debt repayment was suspended.”

The 10-year bond would be amortised but with a grace period ending April 1, 2025. Additionally, a Sinking Fund for meeting repayments will be established. The bonds will also benefit from ‘natural disaster clauses’, making their repayment structure more sustainable.

Participation in the exchange invitation was near universal, at upwards of 93%; significantly above the 75% required to give the GOB the power to mandatorily replace all of the relevant debt.

CariCRIS’ full Rating Rationale on the GOB will be released later in December.