Premier’s Statement On $200 Million Loan Facility
This morning [June 24] Minister of Finance and Premier Paula Cox spoke in the House of Assembly saying that the “Government finance team has been able to successfully negotiate a BD$200,000,000 3 year term loan facility agreement with Butterfield Bank Limited.”
Premier Cox said the strategy for 2011/12 is to borrow in Bermuda in Bermuda dollars, which has “resulted in savings of about $1.5 million in fees and another $2.0 million in interest costs due to the competitive rate and flexible drawdown terms.”
“I must note that only $145 million represents new borrowings. The remaining $55 million was used to refinance outstanding short term debt,” said the Premier.
“It must be emphasised that to date, the Government has not borrowed $200 million under this agreement. However we now have a facility in place to borrow up to this amount. Funds will only be drawn when absolutely necessary.”
The loan matures in 2014 and Government has the option at that time to either refinance this debt, or it can be paid off using the Sinking Fund, based on market conditions at the time.
“The raising of this BD$200 million loan facility provides the Bermuda Government with financing flexibility and also keeps this capital here on the island,” said the Premier.
Premier Cox’s full statement follows below:
Mr. Speaker, Honourable Members will recall that in the 2011/12 Budget Statement, I informed this Honourable House of Government’s financing requirements for the current fiscal year.
At that time I advised that there would be new borrowing requirements of approximately $147 million. 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 an agreement pursuant to the Act.
Mr. Speaker, we have stated as a Government that it will not be business as usual. We have also stated that it is imperative that we look at ways to reduce cost to Government.
Well I am pleased to stand before you and announce that our Government finance team has been able to successfully negotiate a BD$200,000,000 3 year term loan facility agreement with Butterfield Bank Limited that achieves the following benefits:-
- Competitive pricing at 4.95% that will lower Government’s weighted average cost of borrowing so we have less interest payments for the year;
- Lower costs as a result of the fact that there are no arrangement and other normal fees that normally are associated with facilities of these types. For context I should note that these fees typically can range from $500,000 to $2,000,000;
- Minimal documentation requirements resulting in lower legal fees.
- Market Certainty; there are no market timing issues and pricing uncertainty associated with this transaction. Mr. Speaker, international deals will have this risk which can negatively impact the coupon rate and execution of the deal;
- Minimal reporting requirements and no restrictive covenants;
- Ease and speed of access of funds as funds can be received immediately;
- Flexible drawdown terms so that funds can be drawn as needed, saving on interest cost.
The borrowing is being arranged locally and in Bermuda dollars. Accordingly, there is no need for funds to be paid to overseas investors in US$. This in turn aids Bermuda’s balance of payments position.
Mr. Speaker the strategy for 2011/12 is to borrow in Bermuda in Bermuda dollars. This has resulted in savings of about $1.5 million in fees and another $2.0 million in interest costs due to the competitive rate and flexible drawdown terms.
Mr. Speaker, I must note that only $145 million represents new borrowings. The remaining $55 million was used to refinance outstanding short term debt.
Honourable Members are advised that this facility offers the Government valuable flexibility with regard to its debt management strategy. Also satisfying is the fact that a local financial institution was able to provide Government with its financing needs for the year demonstrating the strength of the local financial sector.
Mr. Speaker, it must be emphasised that to date, the Government has not borrowed $200 million under this agreement. However we now have a facility in place to borrow up to this amount. Funds will only be drawn when absolutely necessary.
You will recall Mr. Speaker that during the Budget session I signposted the borrowing requirements for this fiscal year. This is not additional to what was stated at that time.
Mr. Speaker, this loan matures in 2014 and Government has the option at that time to either refinance this debt, or it can be paid off using the Sinking Fund, based on market conditions at the time.
The raising of this BDS200 million loan facility provides the Bermuda Government with financing flexibility and also keeps this capital here on the island. This will have a positive effect on our balance of payments and helps to maintain the Government of Bermuda’s good credit ratings.
Mr. Speaker, moving forward the Government will seek to further expand the domestic capital markets which could provide further benefits to the Bermuda economy.
Thank you Mr. Speaker.
dis is gonna be a hot topic
btw didnt bda guvmint back bntb 200 mill?
D reader I was thinking the same think. Butterfield are pretty smart. Get us to bail them out and then lend us our own money back and charge 4.95% for the privilege.
The govt / taxpayer never gave Butterfield any money. It was a guarantee – like the one you would give to your son/daughter if he needed to borrow. If he defaults, you are on the hook. So the govt never gave butterfield money…i am surprised though that Butterfield can support such a line. Must have found a buyer for Newstead. Further, recall that govt charges butterfield 1% per year for the privilege of this guarantee so the net cost to government on this same 200M is more like 3.95%
Maybe a certain individual made a hefty deposit into the bank to?
They may not have borrowed it yet but this definitely ensures the party continues…
Ok, so let’s see you invest the money back into areas that you previously cut the budget, like education and transport.
NO! Think about it. that money is for when the Bailiff comes knocking at our door. I hope its just China!
On a side note: How can Bank of Butterfield afford to loan the government 200 million? Didn’t they report high loses? Oh yeah, I know how, they laid off a whole bunch of people not too long ago.
Your comment demonstrates little understanding as to how the banking system works. By using depositors money and loaning it out at 4.95% this EARNS interest and other income for the bank associated with the loan. The business model for a Bank is to loan as much money as they can (with the appropriate lending caveats and within banking guidelines) so that they can continue to grow, prosper and hire staff. By negotiating a lower than market interest rate, the PLP has been responsible.
Excellent response…couldn’t have said it better myself…but as I noted above the net cost to the govt is 3.95% given the 1% they charge butterfield annually for the guarantee arrangement.
Ok, so how does your point contradict mine? I know full well how banks earn their money. What I asked was how can B.O.B. lay off so many workers and then loan the government 200 million dollars? I’m asking from an ethics standpoint
Great question..I smell a rat.
You are completely missing it. A bank’s profitability has nothing to do with its ability to lend money. The degree of lending is a function of the amount of deposits….nothing to do with profitability. So the two are unrelated and your argument mute. Lending out money ie. increasing their earnings potential improves their ability to hire people. When lending is down, has it has been given the depressed real estate market, less money is earned by way of spread and the lower the profits.
Only 145 million for “new borrowings” FOR WHAT??? Bda govt is in financial trouble.
Oh, that’s great! Now the PLP can honestly say they’re creating jobs! Whoopeee. Really, Hubert, how can you say the PLP “has been responsible” when they are the ones who created the enormous debt the country is carrying, burdening the population for probably decades to come and then laying on the likelihood of yet more debt just to cover day to day finances and carrying charges for the existing debts? As for Paula Cox saying that funds from this new line of credit “will only be drawn when absolutely necessary”, one wonders what she feels is “absolutely necessary”…trips abroad, dog-and-pony shows in preparation for election campaigning, elaborate entertaining costs, etc.
they are not lending them profit dollars, fella. They are lending them our deposits and keeping the spread which is what generates the profit dollars…my momma once told me, if you dont know what you are talking about, keep your mouth closed…
How much do you want to bet the govt borrows the full $200 million? Then gets voted out leaving the country and the new Govt to foot the bill.
Well let’s hope you’re right on the latter part at least, vote them out as soon as possible!
voted out for who? UBP 2.0? What’s their plan for the country, make everything so expensive that everyone except their rich friends have to leave?
That’s what’s happening now under the PLP. Wish they could slow the rate of inflation or cap grocery costs. We pay the highest prices around for crap quality and roten fruit.
LOL
There’s a certain milk supplier who can lower the price of milk…if he wants too!
I’m lactos intolerant so this would not matter but yes he could. Who do we talk to about bread, fruits and the rest of the store???????
LOL
Hey Doomed that’s what the Pee L Pee has already done.
Oh lord….
@ Doomed
Beat it PLP Kool-aid drinker. You’ll defend your precious PLP until the very end wont you? Lol.
I am honestly speechless…..will things ever change???
I agree that they will probably borrow the full amount, but getting voted out… not so sure? I just hope that they spend the money wisely… (sarcasm).
This is a Troubled Asset Relief Program (TARP) program for Bank of Butterfield!!!!
they have been in financial problems for sometimes
Are you all really that silly. Governments around the world are borrowing money during the economic crisis. The alternative to this borrowing is mass layoffs of government funded employees and deeper cuts in spending.
When the 2 are taken together the borrowing makes sense unless of course you want economic conditions to get worse. Without borrowing this money, they WOULD get worse.
Stop being so short sighted: http://en.wikipedia.org/wiki/National_fiscal_policy_response_to_the_late_2000s_recession
Govts borrow money with a means of paying it back. Bermuda is not in a position to pay it back. If there was a solid plan to revitalize tourism and bring in more international business then we can borrow the money. The govt needs to show me the full plan. If I borrow $10 grand from the bank….they want to know how i will pay it back.
The govt didn’t need to borrow anything during the 1980/82 recession or the 1992/94 recession because they entered the recessions financially strong. The PLP spent stupid abouts of money under the Brown/Cox regime, and now (given that we are financial weak) we’re paying for it. Finally…to compare Bermuda with other countries is not only silly, but it’s downright stupid and dangerous. And to now borrow money to pay for current year expenses is the beginning of a death spiral. Did you not learn that in Economics 101??
@ Black Soil ; I agree with you ,But , let me add that during those two recessions Bermuda was ‘PROPPED UP’ by the presence of the U.S ,Canadian and U.K bases and personnel who injected massive amounts of capital into our economy. Former Premier DREB was by far the most destuctive individual to ever lead ‘ mislead ‘ this country .
@Face the Nation. I would not go so far yet to state that DREB “was” anything. Why do I say this? Cuz he’s not really gone. He, and Col. Burch are waiting in the wings for an opportunity to come back. They have unfinished work to do. So long as the PLP are in power, there is always the risk that these guys come back.
What a horrible proposition ; However I must admit that the Old Kernel is an entertaining sideshow .
ya look at Jennifer Smith(like the girl from Terminator 3, she never quits)they’ll be back too and this party will go on untill we have nothing left, because they had to decieve us!
4.95% does not sounds like an incredible rate to me given the current market conditions…. the three year yield (% borrowing costs) for the following government debt are:
US 3YR – 0.5877%
Malasia 3YR 3.16%
United Kingdom 1.017%
Columbia 6.27%
China 3.49%
Turkey 2.58%
Switzerland 0.371%
Frankly, our government needs to get real with the fact that they are either
a) incapable of getting a competitive (i.e. cheap) rate on government debt
b) put us in a position where we have to pay a premium on our debt because our economy is viewed as unstable
Complaining about the state of the economy is not an acceptable excuse because when the global economy declines so do borrowing rates. If our government takes this whole loan it is going to cost us 9.9 MILLION dollars a year in interest (which could have been avoided if we could have gotten a decent rate) BNTB would be laughing all the way to the bank (if they weren’t already the bank)
Surely you are not comparing Government Bond rates to bank lending rates?
All of those countries listed above have central banks, and also have the tools of monetary policy (print money) to provide stimulus to the economy which the government of Bermuda does not have.
The rate the government secured is below the market rate and is priced in Bermuda Dollars. I would have preferred it to be lower, but lets not compare government bond rates to bank lending rates.
Economics 101 thanks for making things clear I am sure the cilvil servants who help make theses decisions know what they are doing. Plus the Premier should know somthing to do with finance dont you think where she worked before earning what she did accounts for somthing?
She was an attorney for ACE without an education in political science and a diploma in International Law (http://www.cananews.net/news/124/ARTICLE/54575/2010-10-29.html), so no real background in finance. Her family does have a history of finance though, she took over the Finance Ministry from her father, and her brother is the CEO of the BMA.
with*, with an education.
What does being legal counsel have to do with accounting? Two vastly different skill sets. That’s not to say her team isn’t well versed in making financial decisions but your second sentence isn’t correct by any means.
It is because the Premier is supposed to know something about finance that many of us are so upset with the current state of our economy, since it was under her watch that we ended up so deeply in debt. She was the ONLY one in a position to rein in the spending during Dr. Brown’s tenure as Premier. (and please don’t tell me that if she had said no, he would have moved her aside and put another ‘yes’ man in her place. Better that than to be responsible for the crippling debt and failing economy we presently experience…and she says she sleeps well at night! I’m not surprised since her salary(s) and job are not impacted).
And while she is trying to put a positive spin on this new borrowing, the real truth is that we, our children and our children’s children will be under the gun to pay it all off. So look for more of the same – lay-offs, unemployment, homelessness, etc. – and worse, thievery, B&E’s, prostitution, increased drug sales, etc. as people try to make up the shortfall in their personal lives ‘by any means necessary!’
As if Bermuda just started having lay-offs, unemployment, homelessness, thievery, B&E’s, protitution, drug sales, etc. etc. You and I know that those things have been with Bermuda for eons – before the UBP, under the UBP and now under the PLP. As the Bible says “the poor will always be with us”. Remember the feeding of the 5,000?
LAVERNE GET A LIFE…you and the rest of your gang are destroying us and you still have to bring up UBP…Your like a mother who keeps saying not my child….we are in trouble and your in denial…AND please do not bring the Bible into this, because 2 of Gods commandments are: do not STEAL and do not LIE, You need to wake up and talk to the people that have lost their jobs and are hurting because your precious PLP, NOW not a decade ago. If you really cared about Bermuda you would try to make a change and not be stuck on @@@@@@. The poor will always be with us by PLP.
Hilarious…do not steal and do not lie….I like. No doubt LaVerne knows we’re in deep trouble. But she would rather rule in hell than serve in heaven.
Senator Furbert: Are you truly trying to compare the present day calamity with our historical situation?!? You need to stop right now because it is comments like yours that put people’s backs up. It has NEVER in the last 90 years been as bad as it is right now and it appears to be headed for even worse, with few plans in place to aid our most vulnerable. I just learned there are nearly 150 children under the age of 2 living in homes that are below the poverty line. When has that EVER been the case?
I do remember the feeding of the 5000, and I remember who fed them. Are you comparing Premier Cox to Jesus? Or what exactly are you trying to say? I will agree it will take a miracle to sort out our present predicament.
I give thanks daily for employment. I pray for those who have lost their jobs and those who cannot find work. I tithe to an agency that feeds hungry children. What are you doing with your un-cut salary to help those less fortunate? Waiting for the miracle?
I apologize to all readers. It was not appropriate of me to discuss how and where I tithe. I plead feeling frustrated – Senator Furbert’s comments appear so out of touch with the present reality of so many Bermudians, it just burned my fat. I still think it is a scandal and a shame that Premier Cox has not yet cut Senate and Parliamentarian salaries. I remember she said she was going to, but I don’t think it ever happened. Somebody please correct me if I am wrong.
Talking Economics is fine, our Government is in Business, the Hospitality Business. When you start ticking off your customers like Burch & Brown did, all of the above comments don’t make sense!
Wow…I like you Economics 101…finally somebody who blogs who knows what they are talking about…quite refreshing…I was beginning to lose faith…
I stand corrected. May I ask what the current market rate is?
Please educate us “Economics 101″ on what will happen if interest rates rise when the govt rolls-over their debt? Does our increase in debt threaten our credit rating if it rises as a % of GNP? You have no idea to the extent that the PLP govt is playing with fire, or messing with the financial future of our kids. Maybe they don’t care cuz it’s not their debt, but the taxpayers debt? Maybe it’s stupidity?
Oh, nail on head, it’s stupidity.
It’s actually worse than that. The borrowing rate is geared to the Bank’s BMD base rate. That rate can be raised immediately at any time. The 4.95% is not a fixed rate for 3 years. It is an adjustable rate and will be adjusted pretty damn quick when rates begin to move up. 5% (almost) is a very high rate for a AA sovereign to pay. While it is bank debt, quality credits can borrow closer to 1% for 3 years fixed in the international bond market, albeit in USD. Borrowing locally in BMD is better for some reasons.
But it would have been better to borrow directly from the man in the street via a savings bond program and pay, say, 3.0%.
I’m just sayin….
Economics 101 you are great, as you seem to be the only person on here that has a full understanding of what the government of the day has done. I think some persons need to re-read, re-think and grasp a real understanding of this before just making comments in an attempt to pull Hon. Minister Cox down. Lets understand first !!!
That’s just it though the average person doesn’t believe it’s their money being spent.
LOL
This announcement should come as no surprise following the Government’s recent (and fiscally imprudent) reclassification of the BNTB debt guarantee as an off balance sheet liability in order to free up some headroom to permit (even) more borrowing.
- So what is our new aggregate debt obligation and how close are we to the existing (and likely to be increased) borrowing limit?
- In the same vein our interest expense was approximately $70m per annum so what impact does this increased borrowing have going forward?
- If the Government already needs more cash and we’re not even through the first quarter of the 2011/12 budget year how do actual revenue and expense projections compare with budgeted?
I mean, if Government is adamant that we need to borrow more money they should absolutely have some indication as to the accuracy of current results vs. projections which in turn begs the question:
- Are we (as before) having to borrow just to pay normal day-to-day operating expenses (salaries, etc.)? If so, this is akin to using your credit card to pay for simple/basic necessities which is fiscal suicide and indicative of gross mismanagement.
- Why not release actual results vs. estimates?
“Mr. Speaker, moving forward the Government will seek to further expand the domestic capital markets which could provide further benefits to the Bermuda economy.”
What on earth does this mean? Is the Government considering borrowing even more locally?
It means that the private sector in Bermuda has a much more difficult time in securing a business loan. I would prefer to lend to private business in Bermuda since they are held accountable for their actions and they create jobs that people actually want. Lending to govt to simply cover their current expenses is allowing the cancer to grow.
Does this mean if they don’t default on the loan does that mean bank of butterfield takes over the island?
Borrow more money to pay off our loan? Great decision “Finance” minister!
We are in a huge hole trying to get out and you think we should keep digging?
I’ve read it, and then read it again. She’s the finance minister right? I’d be surprised if she could manage a credit card!!! Seriously. I owe 1.xx billion dollars and I’m going to borrow more, not just for capital expenditures but to pay my charges incurred on the existing debt!. OH, and to say it’s not borrowing more because I’m paying off debt is INSANE!! This reminds me of an Abbott & Costello at the bookies!
You cant pay off debt with more debt….it doesn’t work that way. Ewart screwed us; he screwed us all and now we pay pay the piper. We don’t borrow to pay; we earn to pay. We earn with taxes unfortunately (at least the goverNment does, the rest of us get a job). Please someone stop this ride, I’m going to be sick….
Embarassed, I agree with you I feel sick also…can someone explain why the Premier would hire Renne Webb as a consultant ? and what the hell are we paying her ????? the cog is out of control…
As Bermudians, we should all be extremely concerned with these financial instruments being set up by our government to facilitate even more government borrowing.
We all know that debt in and of itself is not a bad thing (most of us on this board probably have home mortages, car loans etc). The problem arises when the borrower loses the ability to pay back the debt and the loan becomes non servicable,resulting in default on the part of the borrower.
For us little people default on a loan results in our homes being foreclosed on by the bank or in the case of a car loan the car gets repossessed by the lender.
When governments cannot service their debt their economies collapse, their currencies devalue and a bailout of some sort is required (who would bail out Bermuda?).
Let’s pray that our government never finds itself in this position. If, God forbid, this does occur, it would be curtains for our way of life.
My way of life in Bermuda has already changed. I never hang around Hamilton after dark, and I pay a security firm to monitor my house. When I was growing up, the worse thing that could happen to you after dark was someone effing you off…and maybe we only had one murder in two years.
Don’t be silly- half of you people don’t quite understand the “balance” of payments (clearly by your silly half witted comments)… BNTB didn’t actually receive any monies from the BDA GOVT, and this loan, is essentially how banks make money. (N.I.I- Net Interest Income, read about it folks!) About time Mike C and his crew (Bermudians are mostly in his inner cirle) at BNTB step it up. They {BNTB} have the potential to be Bermuda’s best bank and show HSBC a thing or two….. the press need to focus in on how HSBC “backstopped” Tucker’s Point…. same difference with Newstead/BNTB receivership issue….
Reading is fundamental folks… don’t be harsh on Madam P and her Posse! At least she’s trying to keep it local???
…..wish I could have my mortgage rate dropped to 4.95%
…..wish I could get a mortgage and be able to pay it
LOL
I have an idea, lets vote for the New Party at the next General election. We will give the new party, lets say, 2 years to try and get this country back on its feet. If the new party makes no progression, lets vote the old Party back in. I think we now have to start thinking like our Mother Country, and judge and vote on performance, Oh! i forgot! it’s a Black and White thing isn’t it?
Canada does it to works wonders for them. Their parties can’t get compliant.
LOL
If you want to know what the international community thinks of Bermuda’s credit rating all you have to do is look at the last bond issue. The day that it went to market Spain’s ten year debt was trading 5 bp’s higher. So we’re supposed to be happy that the market views Bermuda’s credit rating as comparable to that of one of the worst in Western Europe? For that matter, AA rated ten year municipal bonds in the US were trading at almost two points lower. And AA corporates were trading more than a full point lower. As a point of fact, Bermuda is paying more than a single A or triple B company would pay.
municipals are going to have at least a 2 point advantage blankman, they are tax free. The tax equivalent yield is what you need to consider and that would be on par given the numbers you have quoted here.
This is a disaster in the making. Short term borrowing….for nothing. 145 million in new borrowing to finance…what? They are financing current account expenditure. And sucking 200 million in Bermuda dollars out of the private sector will have a further dampening effect on our economy. Disaster control at its worst.
Is the game really up for Bermuda or do we have a future? That is the question which needs answering.
2-3 more years to recover tops.
LOL
Bring back beyonce might as well party as the the ship sinks!!
Good idea, i think she might be willing to perform for just a couple of million! we would have to cut costs though. let’s see, lets take out 2 ferry routes and maybe 3 Bus routs. maybe we could trim the Government I.T. Department, lets get rid of 20 staff, yep, that should do it. Beyonce will definitely fill a few BEDS!
Will Government be able to chop the I.T. Staff without getting the union involved? They need to find staff that are unqualified, like those in the education department. they need to find people that don’t have a leg to stand on.
THE BERMUDA REGIMENT! CUT 100 soldiers, i don’t think china will invade us for the uighurs at least until we cut ties from Britain.
If the BMA did their job a bit better and printed more money, then we’d all be much better off. I mean, we could all be millionaires if they got busy and printed cash 24/7.
Hey Economics 101
You are great, as you seem to be the only person on here that has a full understanding of what the government of the day has done. I think some persons need to re-read, re-think and grasp a real understanding of this before just making comments in an attempt to pull Hon. Minister Cox down.
I can surely tell you know what your talking about!! WOW your better than Bob !
Lets understand first !!! thanks because I have gain a better understanding, looks like an education in this may have to be done, so that persons can really be informed before making unrelated statements, and taking positions without understanding the full context.
There is only one place to where this appalling profligacy leads: DEVALUATION of the Bermuda Dollar, possibly as low as .75 or .80 or whatever to the US and likely currency controls. A country that cannot service it debts, cannot attract sufficient cash inflows for it’s industries to prosper (especially tourism), has ultimately only one choice – Lower it’s costs to make it more competitive and attractive, which is done by devaluing the currency or in the least allowing it to float freely. Of course, when it gets to this extreme, the PLP whether in or out of power will never blame themselves for this mess; I imagine the powers that be will start pointing figures at speculators and so called big business, etc. In reality, this mess has been caused entirely by Paula Cox’s mishandling of the public purse and allowing ministers to spend, spend, spend and keep on spending. If you wish to preserve your hard earned capital from this bunch of freeloaders, Go Green.