“We will continue to press ahead with important investments in infrastructure which will bring jobs, income, and new opportunity to Bermudians,” Premier and Minister of Finance Paula Cox said on Friday [June 28].
“I remain committed to bringing enhanced efficiency to the civil service, and freezing spending at current levels,” said the Premier. “I am confident this is the correct fiscal consolidation strategy, as further spending cuts will only serve to weaken the economy during these tough times, putting more strain on Bermudian families.
On Tuesday [June 26] Fitch Ratings downgraded Bermuda to ‘AA’ from ‘AA+’ citing “deteriorating fiscal and government debt ratios and lack of a credible fiscal consolidation strategy.” Later that day Government raised $475 million in 10-year bonds at 4.13% interest, with almost $180 million representing new debt,
The Premier’s full statement follows below:
There has been much discussion in the media about the Fitch Adjustment of Bermuda’s rating from AA+ to AA. I must share with you a comment that was shared with me in a meeting yesterday.
I met with a group of business leaders and one of themstated that, often, we spend a great deal of time being introspective and negative about our country. That is because we as Bermudians set a very high standard for ourselves which is where we should be. However,when we do so, we run the risk of focusing on the negative and not on the positive.
Today I mean to change that outlook and, notwithstanding the prophets of doom and gloom, put these two matters into a positive perspective.There is so much good news to share and I would like to start with the two matters which have featured heavily in the media over the last few days.
The Fitch Adjustment to Bermuda’s Rating to AA which is the same level that Bermuda had from 1994 – 2006 and is 3rd highest rating.
The Government of Bermuda capital raise of USD475 million in 10-year bonds at an all-in yield of just 4.13%; the lowest fixed rate bond yield ever for the Government of Bermuda
As you are aware on Tuesday, Fitch Ratings adjusted Bermuda’s sovereign bond rating downwards by one notch to AA. The Ministry of Finance anticipated that the continued turmoil in the global economic environment and tough conditions at home could put Bermuda’s sovereign rating at risk of an adjustment.
While the ratings adjustment was not positive, it sees Bermuda return to an AA rating, which Bermuda held from 1994 to 2006. In 2006, Fitch raised Bermuda’s rating to AA+, Tuesday’s adjustment returns us to pre-2006 ratings.
It is important to note that Bermuda continues to receive high Ratings from all 3 major Ratings Agencies, and currently holds credit ratings of ‘Aa2’ from Moody’s (third highest rating) and ‘AA-’ from Standard and Poor’s (fourth highest rating).
Let me quote another businessman who sent the following email to me today:
“Dear Madame Premier:
We have watched the news on the Fitch Report closely. Moving from a AA+ rating to a AA rating still puts Bermuda in a very strong position. The world is enmeshed in a sovereign debt crisis, and rating agencies like Fitch and others have become more cautious and conservative as a result.
No one should feel badly about this ever so modest downgrade. The accompany document from Fitch’s website reflects their sovereign debt rating history. As you will see, there are very few nations that can measure up to Bermuda’s AA rating. ”
In general, we have maintained our credit ratings since the global financial crisis,when other countries have been downgraded significantly, for example on January 13, 2012 Standard and Poors downgraded nine Eurozone nations – Austria, France, Italy, Spain, Portugal, Malta, Cyprus, Slovenia and Slovakia. Another example shows Irelands ratings cut form AAA, which is the highest credit quality to BBB+. These facts clearly show the severity that the financial crisis has had on Government’s finances worldwide.
The Government will continue to balance the needs of all citizens during these tough times. We will continue to press ahead with important investments in infrastructure which will bring jobs, income, and new opportunity to Bermudians.
As the Premier & Minister of Finance, I remain committed to bringing enhanced efficiency to the civil service, and freezing spending at current levels. I am confident this is the correct fiscal consolidation strategy, as further spending cuts will only serve to weaken the economy during these tough times, putting more strain on Bermudian families.
The Government is pleased that Fitch has maintained a stable outlook to the AA rating.
Not all is as gloomy as some would have us to believe, the Ministry of Finance noted that, according to Fitch, Bermuda ratings are supported by Bermudians wealth, the fourth highest GDP per capita among Fitch-rated sovereigns, and the high savings rate relative to its peers in the ‘AA’ rating category.
Bermuda’s competitive advantage as a domicile of choice for insurance, reinsurance and financial services companies remains intact due to its sophisticated legal system, strong regulatory framework, simple tax regime, proximity to the US market and highly-skilled human Capital.
I will now speak on the highly successful bond issue on Tuesday, the same day that Fitch lowered our rating.
The low pricing and very large orderbook confirmed that the markets continue to have a very favorable view of the Bermuda credit story despite ongoing economic challenges and the general volatile backdrop stemming from the European debt crisis.
As announced on Friday June 15th, 2012, the Bermuda Government conducted meetings with domestic and international investors to provide an update on economic/fiscal developments in the country, and also as part of its process of evaluating market conditions and potential funding opportunities to address its borrowing requirement as announced in the National Budget Statement for fiscal year 2012/2013.
An effective, focused and well-timed roadshow by the Government across Europe and the United States successfully educated a variety of accounts on the credit, and despite a large degree of competing supply in the market (9 other Investment Grade deals launched in the morning) the transaction attracted healthy demand and the attention of the world’s top investors.
Also it should be noted that the use of proceeds included the refinancing of more expensive and shorter term debt with $172 million representing new debt. The refinancing of a $200m 4.95% loan facility due 2014 will result in savings for the country over the next 2 years.
Highlights of the transaction follow:
On Tuesday, June 26, 2012, the Government of Bermuda raised USD475 million in 10-year bonds at an all-in yield of just 4.13%;
The transaction achieved the lowest fixed rate bond yield ever for the Government of Bermuda, thereby substantially lowering the Government’s debt cost burden as well as its cost of funds moving forward;
The deal was announced at 9:55am in New York, and had attracted international demand of almost $500 million within one hour
Final orderbook of $1.3 billion (4x oversubscription) enabled the Government to both tighten initial price guidance and upsize the transaction
Distribution went to the US (67%), Europe (30%) and Asia (3%); and by investor type to Fund Managers (75%), Insurance/Pension Funds (12%) and Private Banks/Banks (10%)
Further expands Bermuda’s international investor base, with over 106 investors placing orders including from Austria, Belgium, Bermuda, Brazil, Chile, France, Germany, Hong Kong, Israel, Italy, Luxembourg, the Netherlands, Singapore, Switzerland, the United Kingdom and United States.
As a disclaimer, I want to reiterate: “This release does not constitute an offer of securities for sale in the United States. Securities may not be sold in the United States absent registration or an exemption from registration.”
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