2020-04-01 Bloomberg Markets Magazine

(Jacob Rumans) #1

Hurricane Ivan hammered it in 2004, beginning a decade of eco-
nomic malaise that resulted in a default a decade later.
During Grenada’s restructuring, financiers sought ways to
cushion government indebtedness. A few ideas already existed,
including so-called collective action clauses, which give a super-
majority of bondholders power to make debt restructurings
binding, as well as catastrophe bonds, mainly issued by insurance
companies to protect against disasters.
Grenada’s adviser in the restructuring was White Oak
Advisory in London. Managing director J. Sebastian Espinosa, an
ex-managing director at investment bank Houlihan Lokey Inc.,
and his partner David Nagoski, a former U.S. Treasury official,
have advised governments throughout Africa and Latin America.
In Grenada’s case, they developed a clause that would specifically
address the government’s fiscal condition after a hurricane.
“We wanted to come up with something that was conducive
to bolstering resilience to rising climatic risks,” Espinosa says.
“Adverse-weather clauses provide vulnerable sovereign debtors
with a degree of flexibility by creating built-in buffers that can help
them absorb some of the financial impact.”
Grenada’s restructuring culminated in 2015, and Mottley
would build on that work. Having won office in a landslide in

May 2018, she promptly announced the island would default on its
debt of about $8 billion. She took the born-in-Grenada idea and
expanded it, hiring White Oak for Barbados’s restructuring. The
company drafted clauses that would include all types of natural
disaster and cover almost all of Barbados’s obligations. Mottley sees
the clause as a way to free up cash for rebuilding that would otherwise
go to creditors. “If you have an event, you need fiscal space,” she
says. “How do you best do that but by suspending your debt
To get the restructuring done, however, Barbados needed
buy-in from skeptical creditors. Mottley also needed the support
of her own citizenry, who in a restructuring risked losing money
from their savings and from retirement plans.
In the end, Mottley was able to spread out the pain of aus-
terity. She raised taxes on tourism, reasoning that visitors use
infrastructure and services as much as residents, if not more. She
also announced that foreign loans and bonds would be renegotiated,
a surprise from a country that once boasted of its investment-grade
credit rating and history of fiscal prudence.
Reaching an agreement with foreign holders of dollar-
denominated bonds proved more contentious. Mottley tried to
sell the natural-disaster clause as protection for lenders, because

Mottley addressing the UN General Assembly in 2018: “I ask the world to pause, pause, and just get this one right”




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