Arnold & Porter Kaye Scholer Advises Belize Bond Holders' Committee on Debt Restructuring

Arnold & Porter Kaye Scholer advised the Belize Bond Holders' Committee in the negotiation of a restructuring of Belize's $526.5 million Bonds due 2038, which closed on March 21, 2017. The transaction demonstrated the utility of a robust creditor engagement clause in sovereign bonds, a clause which the firm negotiated for inclusion in Belize's Bond at the time of its prior restructuring in 2013.

The Arnold & Porter Kaye Scholer team was led by partner Whitney Debevoise and included associates Carlos Pelaez and Brian Bombassaro.

The restructuring was accomplished by means of a consent solicitation in lieu of an exchange offer. This approach was made possible by the collective action clause included in Belize's bond in the 2013 restructuring, also led by Mr. Debevoise. The negotiation took only five months, due to the utilization of the robust creditor engagement clause inserted in Belize's bond in 2013 and use of the consent solicitation procedure.

The Belize transaction also contains innovations for a sovereign restructuring done without the International Monetary Fund. A significant innovation was the inclusion of commitments by the sovereign issuer with respect to fiscal adjustment reflected in an unwind clause if the National Assembly of Belize does not enact a public sector budget that includes fiscal measures projected to produce a fiscal consolidation for the 2017/2018 fiscal year equal to 3.0% of GDP (in comparison with the Government's fiscal performance for the fiscal year that commenced on April 1, 2016). A second innovation was the inclusion of commitments to seek a fiscal surplus of 2.0% of GDP in the next three fiscal years, with consequences for failure to achieve such a surplus.

This deal is also precedent-setting for sovereign debt restructuring policy. It demonstrates that creditor engagement clauses work and can make a significant contribution to a faster restructuring that saves resources for the country and for bondholders as opposed to a prolonged restructuring.

Arnold & Porter Kaye Scholer has an extensive history in sovereign finance and restructuring. The firm participated in five Brady Plan debt restructurings and in subsequent troubled bond exchanges for Panama, Pakistan, Greece and Belize. The firm knows and understands well the interaction between sovereign issuers, bond holders, and the official sector, including the International Monetary Fund, the Paris Club and G20 finance ministries and central banks. The firm has also worked on IDA debt buybacks for Zambia and Yemen and handled sovereign debt litigation. Mr. Debevoise, who leads the Sovereign Finance practice, is a former US Executive Director of the World Bank.