Grenada’s grace period ends Monday

Grenada is mere days away from officially defaulting on its US$193 million 2025 bond but the Tillman Thomas administration is suggesting that it might make the payment before the absolute deadline, which is Monday. Grenada was scheduled to make an interest payment on the bond on September 15, 2012, but in a September 12 statement to bondholders, the government let investors know that it would be unable to pay the coupon on that date, but it would make its best efforts to pay within the customary 30-day grace period. 

 

The grace period ends on Monday, October 15. This past Monday, the influential Wall Street-based credit ratings agency Standard & Poor’s Ratings Services (S&P) issued a statement in which they classified Grenada as having defaulted on its loan and lowered Grenada’s foreign currency sovereign credit ratings to ‘SD’ (selective default) from ‘B-/B’. In a statement, S&P said: “According to our criteria, we consider an obligation in default unless payment is made within five business days of the due date, regardless of any grace period.” 

 

In a release on Tuesday in response to the S&P action, Grenada’s Ministry of Finance described the S&P action as premature. “Government considers the action by Standard & Poor’s as premature considering the terms of the agreement for the 2025 notes which provide a grace period of 30 days after the due date and the notice duly issued by Government to note-holders before the due date. This 30-day grace period has not yet expired,” according to the Grenada government.

 

Grenada restructured its foreign currency debt in 2005 after Hurricane Ivan destroyed much of the island in 2004.  In its statement, S&P noted that Grenada’s liquidity pressures were “reflected in the government’s recent wage arrears as well as the missed debt service payments to official bilateral creditors and the default on the foreign currency bond.” The rating agency also indicated that Grenada’s difficulty in servicing its US dollar debt and paying public-sector wages could “presage servicing risks to its Eastern Caribbean dollar-denominated bond, as well as its Eastern Caribbean dollar-denominated treasury bills.”

 

The rating agency said that once Grenada cures its foreign currency debt default, it would assign forward-looking foreign currency ratings. “We will comment on the likely foreign currency ratings as the government’s liquidity situation and future debt payment plans become clear,” S&P said. If Grenada does not make the payment by Monday, the government there is exposed to the threat of any one of the bondholders going to court and requesting a judgment that would allow the creditor to seize Grenadian assets anywhere in the world.

 

Such a situation is currently being played out in Ghana where an Argentine navy training ship was arrested as US creditors demand payment in full on Argentine bonds for which most investors accepted 30 cents on the dollar in 2005. The Associated Press wire service reported yesterday that international investors put a US$20 million price tag on an Argentine navy training ship Thursday after a judge in Ghana ruled that the ARA Libertad cannot set sail until the South American country settles claims for unpaid debts.

 

Justice Richard Agyei-Frimpong had ordered the tall sailing ship held at Tema harbor days earlier after creditors cited judgments in the US and Britain approving the seizure of Argentine assets anywhere in the world. On Thursday, he said Argentina failed to persuade him to remove the injunction. Argentina’s government said the ruling violates international norms as well as rulings by judges in the US, Germany and France that found Argentine military vessels immune from the seizures.

 

The ruling “compromises Ghana’s international responsibility, adding a political dimension to the judicial case that affects bilateral relations,” Argentina’s defense ministry said. It said the country’s deputy defense minister and foreign minister would travel to Africa to discuss the matter with Ghana’s highest authorities. The case was brought by NML Capital Ltd., a subsidiary of the Elliot Capital Management fund run by billionaire Paul Singer, who leads a group of holdouts demanding payment in full plus interest for Argentine bonds bought at fire sale prices after Argentina's economy collapsed in 2002. Some 93 per cent of bondholders accepted pennies on the dollar seven years ago, but Argentina has failed to come to terms with the holdouts.