Sri Lanka bondholder group makes own restructuring proposal for bonds

By Marisa Wong

Los Angeles, Oct. 13 – An ad hoc group of bondholders of the Republic of Sri Lanka announced a restructuring proposal relating to Sri Lanka’s outstanding international bonds, according to a press release.

The group said it has taken note of the progress Sri Lanka has made with its official sector creditors toward reaching an agreement in principle on a debt treatment within the framework of its IMF program.

However, the ad hoc group recently proactively submitted its own restructuring proposal.

The group said the proposal would provide upfront debt relief and includes a menu of new securities that would be offered to the holders of the existing bonds, including a macro-linked bond.

The macro-linked bond is a new instrument that is designed to be liquid and index-eligible; its payouts are linked to the evolution of Sri Lanka’s gross domestic product. The group said the design seeks to ensure both that the instrument is acceptable to bond market participants and that its cash flows will at all times comply with the debt sustainability analysis targets embedded in Sri Lanka’s IMF program in a range of future macroeconomic scenarios.

The group said it believes that its proposal, including the macro-linked bond, “will contribute to restoring Sri Lanka’s debt sustainability and, at the same time, will command broad support from existing holders of Sri Lanka’s international bonds.”

Macro-linked bond proposal

Under the ad hoc group’s proposal, the debt restructuring will be consummated through an exchange offer to all holders of the 11 series of international bonds issued by Sri Lanka.

Holders that elect to receive the macro-linked bonds in exchange for their existing bonds will receive $800 in principal amount of macro-linked bonds for each $1,000 principal amount of existing bonds exchanged, i.e., a 20% haircut.

Ten series of macro-linked bonds will be issued by the republic and delivered to holders of existing bonds that elect to receive the macro-linked bonds.

Each series of macro-linked bonds will mature on successive years, with the first series maturing on Dec. 31, 2027 and the final series maturing on Dec. 31, 2036. Alternately, the macro-linked bonds will be issued in the form of one or more amortizing bonds to ensure adequate liquidity and index eligibility for each new series.

The ad hoc group is advised by Rothschild & Co (rthsrilanka@rothschildandco.com) and White & Case LLP (WCSriLankaTeam@whitecase.com) as financial and legal advisers, respectively.

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