What country enjoys a bountiful tourism industry and pleasant weather, but has seen a government overspending and ill fortune send its indebtedness soaring, forcing a sorely needed sovereign restructuring?

The answer, of course, is Saint Kitts and Nevis, the lush West Indies island federation.

The similarities don’t end there. Like Greece, St Kitts has been locked in an inflexible monetary bloc – the East Caribbean Currency Union – limiting its options in the face a debt-to-gross domestic product of almost 200 per cent when it first embarked on a restructuring last summer.

Moreover, the structure of the restructuring is similar to Greece’s. St Kitts managed to get 96.8 per cent of international creditors – representing about $150m of the $1.1bn debt pile – to sign up to a restructuring that will see them take gouging effective haircuts by replacing old bonds for new ones. The holdouts will be coerced by collective action clauses, much like Greece did. Here are the gritty financial details:

Under the terms of the exchange offer, holders of Eligible Claims had the option of exchanging their instruments either for New Discount Bonds denominated in US dollars, or New Par Bonds denominated in EC dollars. The New Discount Bonds, which are to be partially guaranteed by the Caribbean Development Bank, entail a 50% reduction in face value. The balance is to be repaid over 20 years, with coupons set at 6% for the first four years, stepping down to 3% thereafter. The New Par Bonds will have a final maturity of 45 years, inclusive of a 15-year grace period on principal. Interest is fixed at 1.5% throughout.

This means that on a net present value basis, creditors are overall getting only 32 cents on the dollar, according to Sebastian Espinosa, managing director of White Oak Advisory, which has advised the St Kitts and Nevis government.

Another $600m is held by local banks. Luckily, they are in better shape than Greek lenders, and will be able to weather a restructuring that will see them take equity stakes in a special purpose vehicle that holds government assets that the loans were held against. The balance of the $1.1bn of government debts are treasury bills and multilateral loans from entities like the Caribbean Development Bank, and will not be restructured.

“This has been a complex restructuring, not only because of the levels of debt relief required, but also because of the broadly equal split between what would normally be considered domestic and external debt, the prevalence of secured arrangements, and the implications of St Kitts and Nevis being part of a monetary union,” Espinosa told beyondbrics.

Fortunately, St Kitts and Nevis’ prospects look brighter than that of Greece. Although it is occasionally pummelled by tropical storms that cause a lot of damage – and costly repairs – it has already shut down the sugar industry that contributed to its indebtedness.

Moreover, the International Monetary Fund, which provided a stand-by agreement to tide the island federation over while debt talks were ongoing, says the economy is already showing signs of stabilising, after contracting due to the global economic turmoil and a drop in tourism, and the government is hitting all its fiscal targets.

If only the same could be said of Greece.

Related reading:
St Kitts and Nevis agrees to restructure debt
, FT
In depth: Greece debt crisis, FT
A proper debt restructuring, Alphaville

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