In a move that is sending tremors through the local financial sector, a 100 per cent State-owned enterprise yesterday signalled that it would default on the payment of principal and accrued interest on a $400 million bond that is due to mature on Monday.
In a notice to bondholders yesterday, published as a newspaper advertisement, the Education Facilities Company Ltd (EFCL) called a meeting of bondholders for November 21 "to waive the event of default by the company consequent on its failure to repay the principal amount outstanding and accrued interest on the bonds on the 30th day of October, 2016."
The bondholders will also be asked to defer the repayment of their principal and accrued interest to April 30, 2017 – six months after the maturity date of October 30, 2016.
The seven-year, fixed-rate bond with an interest rate of 5.35 per cent, which was issued on October 30, 2009, is guaranteed by the Government and has the Central Bank as the sole and exclusive agent for the raising and management of the bond. The Unit Trust Corporation serves as the trustee of the bond.
UTC corporate secretary, Jason Grant, signed the published notice as the representative of the trustee.
Financial sources, speaking to the T&T Guardian on the basis of anonymity yesterday, said it was unprecedented, in this jurisdiction, for the issuer of a Government-guaranteed bond to seek to vary the repayment terms of the debt at a meeting three weeks after the "event of default."
But officials dismissed the notion that the Government did not have the $400 million to make the bullet payment of principal, noting that T&T was successful in raising US$1 billion on the international capital market in August.
They said one explanation for the situation could be that the "ball was dropped" in ensuring that the bond was serviced.
The consequences of the Government defaulting on a bond payment can be dire, analysts and officials said, as it can affect the confidence of future bond buyers, potentially impacting all of the Government's outstanding debts through cross-default clauses and could lead to T&T being downgraded to selective default by rating agencies.
Such a downgrade would automatically increase the cost of borrowing by the Government and all the State enterprises in TT dollars and foreign currencies.
Both Minister of Finance Colm Imbert and permanent secretary in the Ministry of Finance Maurice Suite were said to be looking into the issue yesterday.
EFCL chairman, Arnold Piggott, did not respond to calls to his mobile phone yesterday, while a senior UTC official refered the T&T Guardian to EFCL corporate secretary, Annesa Rahim, for comment. But Rahim said she could not comment.
The proceeds of the bond issue were used to provide additional funding for the construction, outfitting and associated costs of 478 early childhood care and education (ECCE) centres during the 2010 to 2013 fiscal years.
The bond was meant to be the first of a series of bonds for the ECCE centres to be issued over four years to the total amount of $1.912 billion.
Although the bond was issued by EFCL, the information memorandum for the bond makes it clear that the monies are guaranteed by the Government.
"The principal monies and interest represented by the bonds will be guaranteed irrevocably and unconditionally by the Government of the Republic of T&T pursuant to the Guarantee of Loans (Statutory Authorities) Act," the memorandum for the bond said.
EFCL is a special purpose company set up by the Ministry of Education to build, repair and maintain schools. Its mandate has been expanded to include furnishing and equipment and the textbook rental programme.