Bermuda Sells $500 Million Of Notes

July 13, 2010

Ending speculation, Reuters has reported that the Bermuda Government today [July 13] sold $500 million in 10-year notes in the 144a private placement market. Wall Street Journal has also reported on it saying “The bookrunner was HSBC. Terms: Amount: $500 million; maturity: 10 years; coupon: 5.603%; price: par; yield: 5.603%; spread: 250 basis points more than Treasurys; debt ratings: Aa2 (Moody’s Investors Service), double-A (Standard & Poor’s Ratings Services) and AA+ (Fitch Ratings).”

Our columnist Larry Burchall predicted this action back in May 2010, saying that “Bermuda is likely to be making a bond offering of at least $500,000,000″.

Mr Burchall went on to say that:

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).

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