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US$135,000,000 Facility Agreement between The Bank of NT Butterfield & Son Limited and The Government of Bermuda

Friday, December 8, 2017
The Hon. David Burt

Ministerial Statement by the Premier and Minister of Finance, The Hon. David Burt, JP, MP

Mr. Speaker, I rise this morning to advise Honourable Members of the status of Government borrowing in relation to the pending execution of a loan facility.  Mr. Speaker, you would be aware that pursuant to the Government Loans Act 1978, I am required to inform the Legislature as soon as practicable after the execution of an agreement pertaining to the Act.

Honourable Members will recall that in the 2017/18 Budget Statement, the former administration advised that Government would have to incur new borrowing of $135 million to finance the 2017/18 deficit and as at March 31st 2018, it was estimated that public debt net of the Sinking Fund, will be $2.48 billion.

Honourable Members are advised that traditionally, the Government finances its deficits almost entirely with borrowing in the international capital markets; there are only $50 million in Bermuda-dollar bonds. The relative lack of a domestic government bond market and local borrowing implies less financing flexibility than those countries able to borrow largely from their own residents enjoy.

Mr. Speaker, $2.434 billion of the Bermuda Government's borrowings are in US$ and are in long-term fixed rate instruments. Currently Government's average cost of borrowing is 4.66%.

As per Government's Debt Management Policy the types of debt instruments to be used by the Government include:

  • Banking loan/overdraft facilities
  • Revolving credit facilities
  • Private Placements
  • Public Bonds

Considering the Government's current debt profile and the size of the borrowing requirements, the strategy for 2017/18 is to borrow in Bermuda, on a short-term basis.

Honourable Members are advised that since the beginning of the fiscal year (April 2017) the Ministry of Finance has been considering various financing strategies to meet Government's financing needs for the current fiscal year.
A Request For Proposal (RFP) was sent out seeking suitably experienced and qualified financial institutions to provide this financing and Honourable Members are advised that five financial institutions responded. All of the responses to the RFP were carefully evaluated by the Ministry of Finance and a Public Debt Management Advisory Group, established by the Minister of Finance. The members of the Group are Barclay Simmons (Chair), Nathan Kowalski and Lothar Crofton. The main objective of this group was to ensure that the Government's financing needs and its payment obligations are met in the most efficient manner possible over the short to medium term, consistent with a prudent degree of risk.

Following this RFP process, I can advise Honourable Members that the Bermuda Government will be executing a US$ 135,000,000 18 month loan facility agreement with the Bank of NT Butterfield & Son Limited, because of the cost of this facility and speed to market. The facility is competitively priced at 4.00% and will lower Government's weighted average cost of borrowing.

Mr. Speaker, it must be noted that at this time Government has not borrowed $135 million but only is arranging a facility in place to borrow up to this amount. Funds will only be drawn when absolutely necessary. It is anticipated that, despite unbudgeted commitments of the former administration, this transaction will meet Government's total financing requirements for fiscal year 2017/18 and a portion of the 2018/19 deficit.

Mr. Speaker, the loan matures in 2019 and Government has the option to either refinance this debt, or it can be paid off using the Sinking Fund. The decision taken will be dependent on market conditions at the time of refinancing and the balance in the Sinking Fund.

Thank you Mr. Speaker.