Beryl-hit 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 defer debt payments following a major natural disaster.

The move comes after Hurricane Beryl wreaked havoc in parts of the Caribbean last month, including Grenada, where Prime Minister Dickon Mitchell estimated it caused damage equivalent to about a third of its annual economic output.

In a notice to holders of one of its only international bonds, the Grenadian Finance Ministry said it “has chosen to make a deferral request as a result of the event”, adding that the “modeled loss” to the Beryl economy was greater than 30 million dollars.

It means Grenada will not make the next scheduled bond payments due on November 12 and May 12 next year, which totals just over $12.5 million. Instead, the money will be added to The subsequent force of the $112 million bond the amount of “principal” payments until the end its mandate in 2030.

movement, which will result in Grenada deferring about another $5 million, made up of a bilateral loan from Taiwan and two smaller loans, it is a landmark step.

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It it is the first time a country has triggered a natural the disaster clause and Grenada was first to include one back in 2015 after a previous hurricane led to two debt restructurings within a decade.

The Caribbean island of Barbados followed suit with its own version in 2018, although it and some alternatives, including a “catastrophe link” in Jamaica, were not triggered in the wake of Beryl.

“While no one wishes a hurricane on a country, it is good to see that the natural disaster clauses that Grenada put into its bonds almost a decade ago are doing exactly what they were designed to do,” he said Sebastian Espinosa, debt expert at White Oak Advisory, which helped draft the country clause, said.

These types of clauses are expected to become more widely used as climate change leads to more frequent and more intense storms like Beryl.

According to research by the International Monetary Fund, one in ten disasters that strike small countries causes damage equivalent to more than 30% of GDP – compared to less than one in a hundred for larger countries.

(Reporting by Marc Jones; Editing by Sharon Singleton)