The Big Idea

Investor outreach

Siobhan Morden | October 28, 2022

This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.

The Bahamas made a clear effort in its latest investor call to improve market communication and reduce the risk premium on its Eurobond curve. The call highlighted strong fiscal performance, friendly market relations, low rollover risks and buffers against external shocks. There is no quick fix for its distressed Eurobond curve. But fiscal discipline and consistent liquidity management should gradually reduce the premium and normalize the curve.

The investor presentation was a polished overview of a country that’s effectively managing the aftermath of successive external shocks. It emphasized high foreign exchange reserves at 8x imports, strong average foreign direct investment at 3.3% of GDP and commitment to ESG programs. The fiscal imbalance and high debt ratios do not reflect the policy mismanagement of other ‘B’ credits but rather the unfortunate circumstances of unparalleled shocks. This is a country with an unblemished track record on debt repayment and high per capita income that excludes eligibility for emerging markets indices. The off-index status is a technical constraint that won’t be resolved anytime soon. It will instead require more active investor engagement and discussion about the fiscal consolidation, the financing program, contingency plans, and prospects for debt liability.

The clear confirmation of absolutely no International Monetary Fund program is meant for one reason – to reassure commitment to honor debt payments. The Bahamas views itself as a high-income country with a reasonable debt sustainability model. The smaller gross financing needs also provides more financing optionality and less dependence on the IMF as a lender of last resort. The typical IMF recommendations also represent radical alternatives between either shock therapy (tax hikes) or debt default. The commitment to pay was further emphasized on the discussion about debt liability management.

There was a lot of focus on the prospects of debt liability management that could include either direct buybacks in the secondary market or blue bond buyback initiatives. The hiring of Rothschild as a financial advisor as well as the creation of a buyback fund ($67 million yearend transfer and $10 million monthly transfer on tax arrears) provides optionality of some type of liability management, especially after the success in El Salvador and potential success in Ecuador. Minister Halkitis mentioned that there was insufficient liquidity to buy back the BAHAM’24s (with illiquid secondary trading on shorter maturity bonds for buy/hold core investors). This wouldn’t rule out a tender buyback operation similar to El Salvador. However, the blue bond alternative seems more realistic for the commitment to ESG transactions.

The onset of the call ruled out any plans for Eurobond issuance with the same funding strategy on either sourcing local markets or multilateral loans. The FY2022/23 borrowing relies upon domestic funding at 56.6% (12.5% loans, 44.1% bonds/bills) and 43.4% external funding (15.9% bank loans and 27.5% IFIs). There was emphasis on the low cost of local funding, the relatively low 13% exposure of bank assets to treasury securities and high 163% average absorption rate of local bonds. The bottom line is that officials believe that local markets remain accommodative without Eurobond financing and still low overall rollover/financing risks.

The fiscal consolidation remains easily on path for program targets this year FY2022/23 after having far outperformed the target last year at $690mn versus $890mn in FY2021/22. There were various inquiries about VAT deceleration and/or prospects for tax hikes. The tax hikes were always viewed as last resort with still emphasis on efficiency gains through compliance, technology, arrears recovery, etc. and medium-term plans for revenues to reach 25% of GDP in FY2024/25.

On risk assessment, the strong external liquidity indicators include high import coverage on FX reserves, an impressive $6bn pipeline of investment projects, a high-end resilient tourism industry and broader efforts to rebuild crisis buffers. The vulnerability to shocks will reduce on the gradual correction of macro imbalances. If the nominal fiscal deficit reaches balance much sooner than FY2024/25, then the quicker the country would lower their vulnerability to external shocks. The potential for pro-active debt liability management would also further improve the liquidity/solvency risks and further benefit curve steepening, especially with the BAHAM’2024 as the buyback candidate. The impressive track record last year on FY2021/22 inspires confidence and validates our bullish view with distressed valuations that still offer ample credit risk premium against shocks and potential for curve normalization.

Siobhan Morden
Santander Investment Securities
1 (212) 692-2539
siobhan.morden@santander.us

U.S. Fixed Income Trading Commentary Disclaimer

This commentary has been prepared by the U.S. fixed income trading desk of Santander Investment Securities Inc. (together with its affiliates, “Santander”) for its institutional investor clients only, and may under no circumstances be redistributed beyond the recipient in whole or in part. The recipient is an “institutional account” as defined in FINRA Rule 4512(c) that (i) is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies and (ii) will exercise independent judgment in evaluating any potential investments and any recommendations of any broker-dealers. For the avoidance of doubt, this commentary is not suitable for or intended for retail investors.

This commentary has not been produced or reviewed by, and does not otherwise reflect the views or input of, the Research Department of Santander (“Santander Research”). This commentary may conflict with the views of Santander Research, is not subject to all of the independence and disclosure standards applicable to research reports prepared for retail investors and is not independent from the interests of Santander. Santander may have positions (long or short) in, effect transactions in or make markets in the subject securities (or related derivatives) mentioned in this commentary, and such positions or trading may be inconsistent with this commentary. However, Santander is under no obligation to make a market in or otherwise provide liquidity in any security discussed herein. This material may have been previously communicated to Santander’s trading desk. Santander may have in the past or may in the future provide investment banking services (including underwriting activity and loans) or other services for the companies mentioned in this commentary.

This commentary has been provided for informational purposes only and is not a recommendation, offer or solicitation for the purchase or sale of any security or related instrument. This communication is intended to be short term and brief in nature, and therefore does not provide a full analysis of any issuer or security or a sufficient basis upon which to base an investment decision. The individual circumstances of the recipient’s investment objectives and needs have not been considered in this commentary, and nothing in this commentary constitutes investment, legal, accounting or tax advice or a representation that any investment strategy or service is suitable or appropriate to the recipient’s individual circumstances. Information contained herein has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made as to its accuracy or completeness. The recipient should not rely on this commentary for any investment decision or other action, and Santander expressly disclaims any liability for any losses arising from any reliance on or otherwise related to this commentary. This commentary reflects the personal views of the individual sender of such commentary, and no part of his or her individual compensation was, is or will be directly or indirectly related to its content. This commentary is provided as of the date and time thereof, and Santander does not undertake any responsibility to update or revise any of the information contained herein, which may change without notice. Past performance is not indicative of future results.

Fixed income securities, including those described herein, are subject to many risks, including, but not limited to, interest rate risk, the credit risk of the issuer, inflation risk, liquidity risk and risk of a downgrade by rating agencies. Emerging markets investments are additionally subject to political, economic, legal, regulatory, market, settlement, execution, currency and other risks. Fixed income, and specifically emerging markets, investments are not suitable for all investors.

Santander Investment Securities Inc. is an SEC registered broker-dealer, FINRA member and SIPC member. Santander Investment Securities Inc. is a direct, wholly-owned subsidiary of Santander Holdings USA Inc., which is a direct, wholly-owned subsidiary of Banco Santander, S.A

Siobhan Morden
siobhan.morden@santander.us
1 (212) 692-2539

This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.

This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.

Important Disclaimers

Copyright © 2025 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.

In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.

The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.

This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.

In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.

Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.

Important disclaimers for clients in the EU and UK

This publication has been prepared by Trading Desk Strategists within the Sales and Trading functions of Santander US Capital Markets LLC (“SanCap”), the US registered broker-dealer of Santander Corporate & Investment Banking. This communication is distributed in the EEA by Banco Santander S.A., a credit institution registered in Spain and authorised and regulated by the Bank of Spain and the CNMV. Any EEA recipient of this communication that would like to affect any transaction in any security or issuer discussed herein should do so with Banco Santander S.A. or any of its affiliates (together “Santander”). This communication has been distributed in the UK by Banco Santander, S.A.’s London branch, authorised by the Bank of Spain and subject to regulatory oversight on certain matters by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).

The publication is intended for exclusive use for Professional Clients and Eligible Counterparties as defined by MiFID II and is not intended for use by retail customers or for any persons or entities in any jurisdictions or country where such distribution or use would be contrary to local law or regulation.

This material is not a product of Santander´s Research Team and does not constitute independent investment research. This is a marketing communication and may contain ¨investment recommendations¨ as defined by the Market Abuse Regulation 596/2014 ("MAR"). This publication has not been prepared in accordance with legal requirements designed to promote the independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The author, date and time of the production of this publication are as indicated herein.

This publication does not constitute investment advice and may not be relied upon to form an investment decision, nor should it be construed as any offer to sell or issue or invitation to purchase, acquire or subscribe for any instruments referred herein. The publication has been prepared in good faith and based on information Santander considers reliable as of the date of publication, but Santander does not guarantee or represent, express or implied, that such information is accurate or complete. All estimates, forecasts and opinions are current as at the date of this publication and are subject to change without notice. Unless otherwise indicated, Santander does not intend to update this publication. The views and commentary in this publication may not be objective or independent of the interests of the Trading and Sales functions of Santander, who may be active participants in the markets, investments or strategies referred to herein and/or may receive compensation from investment banking and non-investment banking services from entities mentioned herein. Santander may trade as principal, make a market or hold positions in instruments (or related derivatives) and/or hold financial interest in entities discussed herein. Santander may provide market commentary or trading strategies to other clients or engage in transactions which may differ from views expressed herein. Santander may have acted upon the contents of this publication prior to you having received it.

This publication is intended for the exclusive use of the recipient and must not be reproduced, redistributed or transmitted, in whole or in part, without Santander’s consent. The recipient agrees to keep confidential at all times information contained herein.