Like Greece, but better?

March 12, 2012

It’s a country with one of the highest debt to GDP ratios in the world, it recently launched a debt exchange to avoid a messy default and it is a member of a currency union. Sounds like Greece?

Oh, and its bond documentation already includes collective action clauses (CACs) to force the minority who don’t want to participate in the debt exchange to do so.  So it can’t be Greece, as Greece had to retroactively legislate for CACs.

In fact, this particular indebted nation is the tiny Caribbean country of St Kitts & Nevis, which has launched a bond exchange tender that closes on Wednesday.

St Kitts is a member of the Eastern Caribbean Currency Union, with a currency pegged at 2.7 to the U.S. dollar. But its total debts of EC$3 billion (US$1.1 billion) give it a debt to GDP ratio of 160 percent, much the same as Greece.

The country (population 50,000) is restructuring around $750 million of that debt through the bond exchange, which includes a partial guarantee from the Caribbean Development Bank (Caribbean version of EFSF support?)

But where most Greek debt was issued under Greek law, requiring the imposition of retro-CACs to push through the country’s bond swap last week and regarded as a default by ratings agencies — triggering pay-outs on credit default swaps —  the St Kitts debt is covered by St Kitts law.

St Kitts law is based on English law and this means that any debt issued within the last 20 years or so will automatically contain a CAC.

As Gabriel Sterne, economist at frontier markets brokerage Exotix says:

It’s the right way to do a restructuring, unlike Greece.

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