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ALBERT BRANDFORD: Credit Suisse option?

Albert Brandford, [email protected]

ALBERT BRANDFORD: Credit Suisse option?

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SOME SAY it was conceived in desperation and born into controversy.

But it seems as if this controversy over the US$225 million Credit Suisse bridging loan – for budgetary support, including investment in infrastructure projects and to build foreign reserves – simply won’t go away.

And amidst all of the political thrust and parry, point, counterpoint and charge, counter-charge, between Minister of Finance Chris Sinckler and Leader of the Opposition Mia Mottley, some of us are no closer to getting a detailed explanation of the circumstances surrounding Government’s failure to meet the June 18 payment in full as stipulated in the loan resolution.

You would recall that when the resolution seeking parliamentary approval was quietly introduced in the House of Assembly in the dead of night on November 26, 2013, some red flags were raised by Mottley.

Among them were the margin hike in the event of a downgrade of Barbados’ foreign currency debt and the condition that Government provide the lenders with a full copy of the Staff Report for the 2013 International Monetary Fund (IMF) Article IV Consultation as soon as it became available, as well as an update on plans for implementation of any specific recommendations in the report.

The objection was to the effect that this was an ordinary commercial bank making an extraordinary demand of a sovereign country that would only be expected from development banks or one in stand-by arrangements with the IMF.

“We have entered uncharted territory when a sovereign government must now report on the execution of its policy to a mere commercial bank for a mess of pottage that without which we would be in serious trouble,” Mottley declared.

It will also be recalled that the loan was sought in circumstances where, by its own admission, the Government was desperate for foreign exchange having sustained an unexplained loss of $300 million in three months – which Sinckler said had led to “a decline in the level of overall confidence in our economy by foreign and domestic investors alike”.

Further, this loan option was taken after Barbados had failed in October to successfully place a US$250 million bond on international markets in an attempt to carry out a new issue and liability management operation.

Press reports from New York on Barbados’ efforts to sell a new October 2025 benchmark bond at about 8.75 per cent, stated: “At the time, local institutional accounts declined to participate in a sovereign tender that involved taking an accounting loss by selling the country’s existing 2021s and 2022s below par.”

Mottley’s concerns, as expressed at a Barbados Chamber of Commerce and Industry luncheon a few days later, extended to a clause permitting the lender to change the pricing structure and other indicative terms and conditions of the facility.

And therein is the crux of the dispute between Sinckler and Mottley: whether there has been a material change in the terms and conditions of the loan facility as set out in the resolution that went to Parliament, or in the resulting Credit Agreement.

Mottley’s main charge is that Government had committed to making eight semi-annual payments of US$28.125m. from June 18, 2015, along with interest, but that as of that date, the approximately $88m. consistent with the terms and conditions approved by Parliament in 2013 had not been paid; rather only $41.2 m.

Sinckler’s initial explanation was that there had been no “default” (his term) and Government had met its obligations in paying the $41.2m.

After further prodding over whether there had been a renegotiation or change in the terms, Sinckler said just as Government paid penalties for the downgrades, it also benefited from positive performance provisions in the contract.

It has emerged that Credit Suisse, and not Government, floated a 12-month extension option on principal repayments as covered in the agreement, relating only to its $143m. (64 per cent) holding in the syndicated facility.

It was also pointed out that holders of the remaining US$81m. had not exercised the extension option and would continue to be serviced under the original amortisation schedule, requiring Government to make payments of US$17.94 from June 2015 through to December 2018.

Government sought and obtained opinions from its economic advisors here and lawyers in the United States, who reviewed the cross default provision in the existing loan obligations and confirmed that in accepting the extension offer would not trigger a cross default or be categorised as debt restructuring.

The question is: who triggered the extension option and why? And will the final payment date be beyond the original 2018 and why?

Albert Brandford is an independent political correspondent. Email [email protected]