Did Belize Issue a Blue Bond?
The simple answer to this question is: no. Belize’s only outstanding eurobond was redeemed in the course of its 2021 restructuring. The funds used for the redemption were the proceeds of a Blue Loan extended by Credit Suisse to Belize Blue Investment Company, a special purpose vehicle incorporated in Delaware, and on-lent to the Government of Belize.
Yet, this is not the end of the story as I became aware when I read this press release in which Alectra, a Swedish pension fund and investment manager, announced that it had bought US$75 million in the Belize Blue Bond. What are the mechanics in play here that—un-technically speaking—transform the Blue Loan into a Blue Bond?
In essence, the mechanics are a transformative repackaging transaction as described in the base prospectus of the structured issuance program by Argentum Securities Ireland PLC and Platinum Securities Netherlands B.V. Pursuant to the base prospectus the repackaging works as follows. Please note that this description will brush over some important nuances as I have not seen the issue terms of the specific notes issuance nor the alternative drawdown prospectus. The below chart is from page 23 of the base prospectus of the structured issuance program.
The issuer, in the case of Belize, Platinum Securities Netherlands B.V., issues notes to the noteholders against payment of the issue price. Let’s assume the issue price of the notes equals the principal outstanding under the Blue Loan, i.e., US$ 364 million. The issuer uses the proceeds of the notes to purchase the Blue Loan, which will serve as the collateral of the notes from Credit Suisse, the lender of the Blue Loan. In selling the Blue Loan to the issuer, Credit Suisse eliminates its exposure to the borrower of the Blue Loan, Belize Blue Investment Company. I would assume that de-risking the lenders balance sheet is the main purpose of the “repackaging” transaction I am describing here. In technical terms, Credit Suisse assigns the Blue Loan to the issuer so that the Belize Blue Investment Company becomes the debtor of the issuer and is obligated to make interest payments on the Blue Loan to the issuer. Looking at the above chart, the Belize Blue Investment Company is the Original Collateral Obligor and the Collateral Payments are interest payments on the Blue Loan.
The issuer owes interest payments to the noteholders and will use the proceeds received from the Collateral Payments to satisfy these interest payment obligations. Will the noteholders receive exactly the same amount of interest payments as is owed under the Blue Loan? It depends on the terms of the notes, however, it is unlikely. At a minimum, fees will be deducted before interest payments are made to the noteholders.
Similarly, will all noteholders receive the same (interest) payments on their notes? Again, it depends on the terms of the notes and the circumstances. The notes may be structured in several classes which together will be considered one series of notes. Exclusively the noteholders of the same class will rank pari passu. This means that the funds available to make the relevant (interest) payment will be applied pursuant to a waterfall. This means that in case of insufficient funds, not all noteholders will be paid (in full). This also means that noteholders of different classes may hold different risks and may price them accordingly.
Once Credit Suisse has assigned the Blue Loan to the issuer, the issuer has the ability to provide the Blue Loan as collateral to the trustee who will hold the collateral on behalf of the noteholders. In practice, that means that the issuer will assign the Blue Loan to the trustee subject to certain conditions. Because we are looking at a limited recourse structure, in a worst case scenario, when the issuer defaults, the noteholders will have recourse only to the collateral in respect of the relevant series of notes as well as any cash and rights the issuer holds in respect of that relevant series of notes (together, the “Mortgaged Property”), and not to any other assets of the issuer or any other person. As soon as the Mortgaged Property is exhausted, whether following liquidation or enforcement of the collateral or otherwise, if any outstanding claim, debt or liability against the issuer in respect of the notes of such series remains unpaid, then such outstanding claim, debt or liability, as the case may be, shall be extinguished and the issuer shall have no further obligation in respect thereof.
Pursuant to the base prospectus, the transaction parties may agree on an additional insurance mechanism, namely a swap agreement between the issuer and a swap counterparty, here Credit Suisse International. The swap agreement governed by the ISDA Master Agreement would provide for the collateralization by way of a credit support annex by either or both of the issuer and the swap counterparty of their respective obligations under the swap agreement and would therefore offer an additional layer of protection (in addition to the collateral).
Where does all of this leave us with respect to the original question of whether Belize issued a Blue Bond? The answer remains no, however, and curiously, there are notes outstanding directly linked to Belize’s Blue Loan. It would be of particular interest to see the issue terms or the alternative drawdown document of these notes, including whether there is any “blue” disclosure in the document describing Belize’s Conservation Trust, the Blue Projects it conducts, the collaboration with TNC and the political risk insurance provided by the DFC.
Maria C. Schweinberger