Latin America is no stranger to sovereign debt restructurings, boasting a long and inglorious history of governments reneging on their creditors. The latest is Belize, which defaulted on its international debts this summer.

Belize’s $547m bond due in 2029 constitutes just over half of the country’s total indebtedness, presently at about 70 per cent of the country’s $1.4bn gross domestic product, according to central bank figures.

The bond is itself the product of a past debt restructuring in 2006-07, which consolidated the country’s international debts into one instrument. However, the bond included provisions for its payments to increase over time, and earlier this year the coupon rose to an annual 8.5 per cent.

Belize’s government – headed by prime minister Dean Barrow – decided that the coupon increase was too painful, given its forecasted Bz$75.2m ($38m) budget deficit in 2012-13, and started preliminary restructuring talks with its creditors.

Talks were initially testy, given bondholders’ scepticism over Belize’s lack of ability to pay, and the severity of three restructuring proposals tabled in August.

These offered a mix of haircuts, lower coupon payments and repayment extensions, which would have meant overall writedowns of 70-80 per cent, according to analysts. In Argentina’s contentious $100bn restructuring, creditors got between 25 to 29 cents in the dollar.

“The scenarios presented by Belize are no better than what creditors got from Greece, and that was a far worse crisis, and they were worse than for Argentina,” notes a person close to the bondholders.

The restructuring talks soured further when Belize missed a $23m coupon payment due on August 20, pushing the bond into a default. Premier Barrow argued that the country could not pay the coupon due “given the financing shortfalls and other challenges we face”, but the decision angered bondholders, as it could lead to an acceleration of the bond repayment.

In September Belize paid half of the overdue coupon to ensure that the creditors committee – chaired by AJ Mediratta, a partner of US hedge fund Greylock – would agree not to seek “legal remedies” for a further 60 days to help the restructuring.

This has helped keep talks more cordial, according to people familiar with the process, but the clock is ticking on the debt restructuring negotiations.

“Restructuring discussions are always difficult,” says Sebastian Espinosa, managing director at White Oak Advisory, a boutique that is advising the Belize government. “Talks are ongoing, but Belize is not going to impose a time frame on the them given that debt sustainability is at stake.”

Bondholders, who are being advised by BroadSpan Capital, certainly expect sweeter terms to be presented.

The price of the security plunged when the three proposals were presented, but has since recovered to just over 40 cents in the dollar. Time will tell if the restructuring ends on a better note than it started.

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