Burchall Report: Bermuda’s Big Borrow

May 15, 2010

1096838_take_the_buck_2[Written by Larry Burchall]

It has been reported that the Bermuda Government has hired HSBC Holdings plc. to arrange a series of bond investor meetings in Asia, Europe, the US and in Bermuda. Cbonds reported that investor meetings will start on Monday in Hong Kong, moving to Singapore, Los Angeles and Boston and end up in New York a week later.

Should this be true, Bermuda is likely to be making a bond offering of at least $500,000,000. Governments sell bonds as a way of borrowing money. Bermuda Government borrowing is covered by the Temporary Loans Act (1973). This Act restricts the Minister for Finance to certain forms of borrowing. Notes to the 2009 Financial Statements indicated that recently there were problems with this Act and the Minister’s use of temporary loans.

Since 2004, Bermuda Government debt has gone up over 800%. It rocketed from the audited and reported low of $119m at March 31st 2004 to the reported $989.8m of March 31st 2009. Between March and October 2009, Government also arranged and used an Overdraft Facility of $207.5m that was held, initially, by both HSBC and Butterfield Bank. Between October 2009 and March 31st 2010, that $207.5m Overdraft Facility dropped to $100m, was held entirely by HSBC, and was due to run out March 31st 2010.

The Minister for Finance, in the Budget Statement, reported that at March 31st 2010, Government debt stood at $989,800,000. This Debt consisted of $830,000,000 in various borrowings; $800,000 in National Education Guarantees; $10,000,000 West End Development Corp. Guarantee; and $200,000,000 Bank of Butterfield Preference share guarantee. The Sinking Fund, intended to pay down Debt, was at $51,000,000.

On March 31st 2009, the Government Debt consisted of two Senior Notes due in 2014 and 2022, and together worth $215,000,000. There was a Loan Facility, fully taken up, of $200,000,000 that is due for repayment thirty-three days from now, on 17 June 2010. Total commercial paper or Notes was $415,000,000. At this time, these are the only Notes known to be held.

On March 31st 2010, the Government’s $989,800,000 Debt consisted of that $415m in Notes, $210.8m in Guarantees, and $364m in Overdrafts and other short-term arrangements. The short-term arrangements had to be regularized in accordance with the provisions of the Temporary Loan Act (1973).

In going into the open market, the Government is likely consolidating and regularizing its currently ir-regular situation. To meet its full current obligations, the Bermuda Government must borrow at least an additional $564,000,000.

This will cover the existing $364m currently not covered by Notes and will allow the settling of the fully taken up $200m Loan Facility that is due in just thirty-three days.

Government will likely borrow even more than $564,000,000. The Budget Statement shows a projected Debt that is $143,464,000 higher than now. If Government borrows up to this level, then Government could be seeking as much as $708,000,000 in this first time ever foray, in this way, into the global market.

Should Government seek the full $708m, then with the bonds fully subscribed and issued, Bermuda’s National debt will stand at about $923,000,000 and there will still be the $210.8m in Guarantees. This will take total National Debt to $1,133,800,000. Just $116m short of the new limit of $1.25bn; almost ten times higher than six years ago in 2004; and $1,014,800,000 higher than it was on March 31st 2004.

At this time, Bermuda has a high credit rating with the various financial rating agencies such as Standard & Poors, and Moody’s. Should these agencies lower Bermuda’s rating, this will result in an increase in the interest paid on all of Bermuda’s borrowings.

At this billion dollar level of Debt, every one percent rise or fall in interest rates means an additional $10,000,000 per year in Interest; or a saving of $10m in Interest. Currently, interest rates are historically low, and Bermuda’s credit rating is high.

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Comments (2)

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  1. julio says:

    spend you stupid basterds, spend.

    • terry says:

      Actually the spending is being reapped by a number of persons (many) via various ways.

      The children will be left with nothing but debpt. Then again, a majority right now have nothing except fear and no real guidence except in schools. Thanks to our dedicated teachers and all community organisers.

      Oh, Julio, there is a very ceertain way to stop all of this. Of course you know the answer.