A view of a Grenada’s north coast (Lloyd Morgan) 
Grenada’s restructuring agreement is set to include a novel hurricane clause that would delay payments if a major natural disaster strikes the island. The clause is designed to reduce the chances of a new default, the government’s financial adviser told LatinFinance.

The agreement calls for a 50% haircut for creditors and is the result of two years of arduous negotiations with the holders of $262m worth of debt denominated in US and East Caribbean dollars due in 2025.

The hurricane clause will allow Grenada to defer payments for a predetermined period of time should a natural disaster reduce the government’s ability to service its debt, said Sebastian Espinosa, managing director at White Oak, which was financial advisor to the sovereign on the deal.

“Without a built-in mechanism for dealing with such situations in an orderly manner, the acute financial disruption that usually accompanies a natural disaster in the Caribbean would be likely to trigger a default,” he said. “This would eventually create conditions that only a comprehensive restructuring could cure. By wiring in now a cushion that could be used by the debtor to absorb exogenous shocks, creditors increase the likelihood that the pressures created by a future natural disaster will be contained.”


The clause is likely to mirror a similar provision included in Grenada’s agreement with the Export-Import Bank of Taiwan in January. The lender also agreed to take a 50% haircut on its $36.6m loan to Grenada.

The restructuring deal calls for the sale of two bonds denominated in US and East Caribbean dollars. The notes will likely have a face value of 75% of the outstanding debt, because the haircut is two-pronged. There will be a 25% haircut outright and the remainder once the IMF reviews its extended credit facility with the country in September 2017.

“The mechanical alternatives for implementing the 50% haircut in two stages are still being analyzed,” said Espinosa. “Whilst the official sector has been phasing in debt reduction for quite some time through Paris Club agreements, this is a first in the case of sovereign bonds.”

The agreement is with a committee of investors holding around 75% of Grenada’s debt. Franklin Templeton, GMO and Greylock Capital are understood to be among the holders of Grenadian bonds.

Cleary Gottlieb acted as legal advisers to Grenada, while BroadSpan Capital was the committee’s financial advisor, Morgan Lewis the legal advisor and BlitzerConsulting was a special advisor. LF