The loan, according to Premier Cox, will cover an expected $145 million new borrowings, with the remaining $55 million refinancing outstanding short-term debt.
The borrowings reflect the $147 million Budget deficit for 2011/12 the Premier announced in February. Government’s total debt outstanding was at $1.05 billion in February but is expected to grow to $1.19 billion by the end of this fiscal year. That does not include guarantees such as the $200 million Butterfield Bank preference share issue, which no longer counts against Government’s debt ceiling.
Announcing the agreement in the House of Assembly, Ms Cox said: “We have stated as a Government that it will not be business as usual. We have also stated that it is imperative that we look at ways to reduce cost to Government.
“Well I am pleased to stand before you and announce that our Government finance team has been able to successfully negotiate a $200 million three-year term loan facility agreement with Butterfield Bank.
“The raising of this loan facility provides the Bermuda Government with financing flexibility and also keeps this capital here on the Island.
“This will have a positive effect on our balance of payments and helps to maintain the Government of Bermuda’s good credit ratings.”
The Premier said the deal has the following advantages:
- a competitive 4.95 percent price that will lower Government’s weighted average cost of borrowing, meaning less interest payments for the year;
- absence of the usual fees associated with such deals, which normally range from $500,000 to $2 million;
- less legal fees stemming from minimal documentation requirements;
- market certainty due to Butterfield being local;
- minimal reporting requirements and no restrictive covenants;
- easy and quick access to funds;
- saving on interest cost as funds can be drawn when needed, thanks to flexible drawdown terms.
Ms Cox said Government’s strategy for this fiscal year is to borrow in Bermuda, in Bermuda dollars, yielding savings of about $1.5 million in fees and another $2 million in interest costs.
“Honourable Members are advised that this facility offers the Government valuable flexibility with regard to its debt management strategy,” she said.
“Also satisfying is the fact that a local financial institution was able to provide Government with its financing needs for the year demonstrating the strength of the local financial sector. It must be emphasised that, to date, the Government has not borrowed $200 million under this agreement. However we now have a facility in place to borrow up to this amount. Funds will only be drawn when absolutely necessary. You will recall that during the Budget session I signposted the borrowing requirements for this fiscal year. This is not additional to what was stated at that time.”
Ms Cox said the new loan matures in 2014, and Government has the option to either refinance the debt or pay it off using the Sinking Fund, depending on market conditions.
She added that Government will now seek to further expand domestic capital markets which could provide further benefits to the Bermuda economy. Reacting in a press conference yesterday, Shadow Finance Minister Bob Richards said he was expecting this kind of announcement as Government “doesn’t have enough money to carry out day-to-day operations”.
He said: “It’s a credit facility, it’s like an overdraft with a bank.
“It’s not a bad deal at all. This is a bank Government helped out of extreme stress, it’s only natural that they’d go to them and get a good deal.”
(Parts of this article were written with content submitted in a Gazette Online publication)