Beryl-Battered Grenada Becomes First to Use Government Bond Hurricane Clause

• Grenada has become the first country in the world to use a so-called hurricane clause in a government bond, a special feature that allows authorities to postpone debt payments in the wake of a major natural disaster.
• The move comes after hurricane Beryl wrought destruction in parts of the Caribbean last month, including in Grenada where Prime Minister Dickon Mitchell estimated it had caused damage equivalent to roughly a third of its annual economic output.
• In a notice to the holders of one of its only international bonds, the Grenadian finance ministry said it had "elected to make a Deferral Claim as a result of the Event", adding the "modelled loss" to the economy from Beryl was greater than US$30Mn.
• It means Grenada will not make the bond's next scheduled payments due on Nov. 12 and May 12 next year, which combined add up to just over US$12.5Mn. Instead, the money will be added to the US$112Mn bond's subsequent lump sum "principal" payments until the end of its term in 2030. The move, which will also see Grenada defer roughly another US$5Mn made up of a bilateral loan from Taiwan and two other smaller loans, is a landmark step.
• It is the first time a country has triggered a natural disaster clause and Grenada was the first to include one back in 2015 after a previous hurricane led to two debt restructurings in the space of a decade.
• Fellow Caribbean island Barbados followed suit with its version in 2018 although that, and some alternatives including a "catastrophe bond" in Jamaica, have not been triggered in the wake of Beryl. That said, these kinds of clauses are expected to become increasingly widely used as climate change leads to more frequent and intense storms like Beryl.

(Source: Reuters)