Videos: Minister Bob Richards On Refinancing

October 19, 2016

“The Government has taken the opportunity to not only finance the fiscal 2016/17 budget deficit of $199.4 million, but also to refinance a $200m, 5.0% loan facility,” Minister of Finance Bob Richards said today.

“The refinancing of the $200m, 5.0% loan facility, due in 2017, will now result in interest savings of $1.8 million for the Government over the next 9 months and the repurchase of higher-coupon bonds will result in annual interest savings of approximately $3.8 million,” the Minister added.

“It is important to note that although the Government issued a total of $665 million in new bonds, the total amount of debt, held by the Government, will only increase by $188.9 million.”

Video of the Minister’s statement:

Video of the Q&A following the Minister’s statement:

The Minister’s full statement is below:

As announced on Friday September 30th 2016, 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 laid out in the National Budget Statement for fiscal year 2016/2017.

An effective, focused and well-timed roadshow by the Government across Bermuda, Europe and the United States successfully informed a variety of potential investors, and as a result the subsequent transaction attracted healthy demand from some of the world’s top investors. The transaction closed today.

Given the receptive context for new US$ debt issuance and the low prevailing base rates, the Government has taken the opportunity to not only finance the fiscal 2016/17 budget deficit of $199.4 million, but also to refinance a $200m, 5.0% loan facility and engage, concurrently with the new issue, a targeted liability management transaction strategically aimed at repurchasing some of our outstanding higher-coupon bonds.

The refinancing of the $200m, 5.0% loan facility, due in 2017, will now result in interest savings of $1.8 million for the Government over the next 9 months and the repurchase of higher-coupon bonds will result in annual interest savings of approximately $3.8 million.

It is important to note that although the Government issued a total of $665 million in new bonds, the total amount of debt, held by the Government, will only increase by $188.9 million.

Highlights of the transaction are as follows:

  • On Tuesday October 11, 2016, the Ministry of Finance successfully accessed the international capital markets, placing via intraday execution, a US$665 million “long” 10-year bond offering due January 2027.
  • This resulted in a record low yield; a coupon/yield of 3.717%, representing the lowest-ever for Bermuda [42 basis points "bps" less than Bermuda's former tightest coupon].
  • A record low spread; the spread of US Treasuries of + 195 bps, marks a record low spread and 30 bps tighter than the Government’s previous issuance.
  • A concurrent Partial Tender Offer significantly reduced near term maturities; US$276 million of the US$500 million 5.603%, 144A/Reg S maturing in 2020 were tendered for cash [only USD224 million remain outstanding].
  • 100% of the 2020s tendered were accepted, with the 4.138% US$475 million 2023s slated for a potential future repurchase.
  • This was the first time in history that the Bermuda Government has conducted a tender offer and this has signaled to investors that the Government has now moved to a strategic mindset in its debt management operations.
  • The new issue and tender offer are expected to reduce pro-forma recurring annual interest expense by about US$5.8 million [2.8% of the current deficit]
  • A reduction in the Government’s average borrowing cost of 0.41% is also expected, along with a 1.7- year extension in the entire debt portfolio’s average life.
  • In a sign of confidence in Bermuda’s recovery, a quality order book developed for the new issue, totaling over USD1.7 billion [2.5x oversubscribed], which supported the transaction during the day.
  • Pricing moved swiftly from Initial Price Thoughts of “Low T+200 bps area” [8:40am ET], to guidance of “T+200 +/- 5 bps” [11:55am ET], ultimately launching at the tight end of guidance for T+195 bps [1:25pm ET]
  • A successful roadshow across Hamilton, London, New York, Boston, Los Angeles, and Germany was undertaken – of the 34 investor groups met, 24 participated, contributing a demand of close to USD750 million.
  • Local Bermudian investors also contributed additional demand in excess of USD100 million.
  • There was solid investor distribution, underpinned by the US [65%], with receptive demand also coming via UK/Europe [23%], Bermuda [7%], and Asia/Middle East [5%].
  • Top-quality Fund Managers and Insurance names made up 75% of the orderbook, with key Pension Funds and Central Banks making up a notable 10%.
  • Proceeds will be allocated to fund the tender, repurchase existing loan obligations due in 2017, and partially fund the 2016-2017 fiscal deficit.

The Government team that was involved in the Road Show was: E.T. Bob Richards, [Deputy Premier and Minister of Finance] and Anthony Manders [Financial Secretary]. The Government team was also supported by key senior officials in the Ministry of Finance Headquarters and the Attorney General’s Chambers.

This successful capital markets transaction underscores institutional investors’ positive response to the Bermuda Team’s narrative of the progress Bermuda has made to date, and our future plans in two distinct areas:

  • a. Progress in deficit reduction and our tax plans to make payroll taxes more progressive and yield more revenue, along with other measures already announced in our last National Budget Statement
  • b. Progress in restoring economic growth without impairing the government’s credit worthiness.

The Ministry of Finance wishes to thank HSBC Bank of Bermuda, HSBC Securities [USA] Inc., and Milbank, Tweed, Hadley & McCloy LLP [the Government’s USA attorney] and Simpson Thacher & Bartlett LLC [HSBC’s USA attorney] for their roles as strategic partners in helping to shape a very positive outcome for the Government of Bermuda in this recent issue in the global markets.

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Comments (20)

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  1. archy says:

    LOL ‘only’ “the total amount of debt, held by the Government, will only increase by $188.9 million.”

  2. Justin says:

    Bob, when are you going to hold a press conference announcing that we have balanced the budget and are now beginning to pay off the debt? No matter how you spin it we are still adding to the debt!

    • Micro says:

      When the stuff decisions are made. Government is too big for it’s pockets but correcting that creates more problems than it solves.

    • Politricks says:

      The $189mn is actually less than the $200mn annual deficit predicted.

      This is part of the ‘glide path’ suggested by SAGE and adopted by the Government.

      The only way to balance the budget instantaneously would be to cut our biggest expense which currently consumes 60% of Govt revenues. That expense would be the civil service. However, this isn’t possible at this point in time for both economic and political reasons.

      Thus the only way is to increase Government revenue which has been a hallmark of many policies and/or legislative changes, most of which have been vehemently opposed.

      In the end we need foreign investment badly, despite the constant calls against foreigners. We make nothing and import everything, something not many people seem to understand.

      Or we can allow the UK to take control of our finances as they did in Cayman for a few years. Seems to have been beneficial as Cayman is now recording a surplus with enough monies to give raises to the civil service.

      • justin says:

        I agree with everything you say. My point is that the jobs he’s trying to protect are filled by people who don’t and will never vote for him anyway. So why is he doing it?

        • Build a Better Bermuda says:

          Because it is what is right for the country, he is putting country before party. On the flip side, we have the PLP promising to return us to the state of spending that put us in the position where we are now, return us to a deficit that will cripple this country from being ever able to support its people.

          • Justin says:

            How is putting the country more in debt putting country before party? He talks about only adding another $189m to the debt? That’s smoke and mirrors because that doesn’t factor in how much interest we will pay on the $189m!

    • jt says:

      He could do it tomorrow but too many people would complain about the logical method used to achieve it.

    • blankman says:

      Justin, if you want them to balance the budget immediately there is a simple solution. Fire half of the civil service. After all, that’s soaking up a very large part of government expenditures.

      But, if you don’t like that, what do you want them to do?

      • justin says:

        Either we do it ourselves or the bankers will do it for us. If the bankers do it for us it’ll mean we are bankrupt and I don’t think anyone wants to see that happen? Might as well make the tough choices now because when the PLP wins the next election they sure as hell won’t do it!

    • This Dreamer more in 4 years then P.L.P. spent in 14 years.

      • Toodle-oo says:

        not surprisingly you’ll never get it .

      • jt says:

        Not 14 and look at how the money is having to be spent now, then why.

      • Zevon says:

        The PLP increased debt by 800% in six years.
        Astoundingly stupid.

  3. blankman says:

    Well done.

  4. Terry says:

    It’s all bulls..t and spin for OBA and the up coming e.ection.

    Shalom.

  5. the real Terry says:

    @onion juice we all know who the dreamer is, and obviously like Burt math was not your favorite subject

  6. Sailboat says:

    Sure, Bobby, Ole Boy. Just kick the can farther down the road. On the express route to ruin.