Ministerial Statement by the Minister of Finance, The Hon. Curtis L. Dickinson, JP, MP

Mr. Speaker, Honourable Members are advised that on Tuesday September 17, 2019, the Ministry of Finance successfully executed a US$200,000,000 Credit Facility with local financial institutions. Therefore, in accordance with Section 2 (3) of the Government Loans Act 1978, I rise this morning to inform this Honourable House of the execution of this borrowing transaction pursuant to the requirements of the Act.

Honourable Members will recall that on September 13th 2019 I held a press conference updating the general public on the latest developments at the Caroline Bay project (formerly Morgan’s Point). During this press conference I notified the public of the following:

• To date, the developers have been unsuccessful in their attempts to secure funding to meet their financial obligations to the Tranche B and Tranche C lenders. As a result of these defaults both the Tranche B and C lenders have demanded repayment in full of their outstanding loans
• In seeking to defend the public purse, the Government has elected to exercise its option, by reason of the defaults, to acquire the interests of both the Tranche B and C loans.
• The Government was in the process of negotiating a Credit Facility with local banks for up to $200 million; the proceeds of which will be used, in the first instance, to pay the Tranche B and C lenders.
• These extraordinary circumstances and the liabilities triggered by these defaults have resulted in the government having no choice but to raise the debt ceiling in order to borrow monies to fund the payments to the Tranche B and C lenders as set out in the guarantees.
• That an amendment to the Government Loans Act 1978 to increase the debt ceiling by $250 million to $2.75 billion was being tabled with immediate effect.

Mr. Speaker, I can now advise Honourable Members that the Bermuda Government has executed a US$200,000,000 1 year term loan facility agreement jointly with the Bank of NT Butterfield & Son Limited and HSBC Bank of Bermuda Limited. This facility was competitively priced at 4.25% and it is satisfying that local financial institutions were supportive in providing Government with its financing needs for this unfortunate matter.

Honourable Members are advised that this facility offers the Government valuable flexibility with regard to its duty to exercise the full range of options provided under the project agreements, which includes in the first instance, the purchase of the interests of the B and C lenders. The remaining proceeds will be used substantially to fund other costs associated with this matter.

Mr. Speaker, I can advise that the Tranche B Loan was provided by an institutional investor, and the Tranche C Loan, was initially provided by three Bermuda re-insurance companies, Arch, Axis and Validus; Validus’ portion has been acquired by Arch and Axis. The total value to buy the legal interest of the B and C lenders is approximately $170 million and I can confirm that the Government has closed on the Certificate Purchase Agreement for the B lenders.

Mr. Speaker, it must be emphasized that at this time Government has not borrowed $200 million but rather has a facility in place to borrow up to this amount. Funds will only be drawn when absolutely necessary and only funds that are drawn will be charged with interest. This transaction will meet Government’s total financing requirements in order to prudently protect the public purse from the consequences of the failure of this development.

Mr. Speaker, let me make it clear that neither the new borrowing nor the revised debt ceiling amounts have been determined for any purpose other than to fulfill the Government’s obligations and exercise of its rights under the respective guarantees for the Caroline Bay project. However, as I presented in my press conference on September 13th, 2019, we will seek advice from professional advisors to determine the extent there are other potential liabilities the Government may need to address. Without this advice, borrowing or establishing a debt ceiling without room for contingency would be irresponsible.

The loan matures on September 17th 2020, prior to which the Government intends to explore options to refinance this debt in accordance with our long term debt management strategy.

Mr. Speaker if this facility were fully drawn gross debt would stand at $2.78 billion and debt net of the Sinking Fund would be $2.66 billion.

The decision to increase the debt ceiling runs counter to the plan that was outlined in this government’s budget statement in February which stated that we had no plans to incur any additional long-term borrowings in this fiscal year. While this turn of events was unplanned, our commitment to being prudent stewards of the public purse remains unchanged.

Thank you Mr. Speaker.