Fitch Rates Bermuda’s 2023 Global Bonds ‘AA
Fitch Ratings has assigned a long-term foreign currency rating of ‘AA’ to the Bermuda Government’s $475 million Global bond maturing in 2023.
Yesterday [June 26] Fitch Ratings downgraded Bermuda to ‘AA’ from ‘AA+’. Later that morning the Bermuda Government raised $475 million in 10-year bonds at 4.13% interest. $295 million will be used to refinance existing debt at a lower interest rate, with $180 million representing new debt.
The full statement from Fitch follows below:
Fitch Ratings has assigned a long-term foreign currency rating of ‘AA’ to the Government of Bermuda’s USD475 million Global bond (4.138% coupon) maturing in 2023.
The rating is in line with Bermuda’s long-term foreign currency Issuer Default Rating (IDR) of ‘AA’ with a Stable Outlook. The proceeds will go toward repaying public short-term obligations and a BD$200 million credit facility with a local bank that matures in 2014, with the balance to be used for other budgeted governmental purposes.
On June 26, 2012, Fitch downgraded Bermuda’s long-term foreign currency IDR to ‘AA’ from ‘AA+’ and its long-term local currency IDR to ‘AA+’ from ‘AAA’. The Rating Outlook remained Stable.
The downgrade of Bermuda’s ratings reflected its weak macroeconomic performance relative to peers, deteriorating fiscal and government debt ratios and lack of a credible fiscal consolidation strategy.
A narrow and volatile revenue base further limits Bermuda’s ability to maintain large fiscal deficits and debt burdens. However, the country benefits from access to international capital markets and the local financial system. A sinking fund also provides the government with some flexibility to service its debt.
The 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 U.S. market and highly skilled human capital.
Such credit strengths, however, are counterbalanced by the island’s lack of economic diversification, weaker growth prospects and limited policy flexibility resulting from its currency peg to the American dollar and its narrow fiscal space.
The poor economic performance observed in the last four years has accelerated the deterioration in public finances, with large fiscal deficits resulting in an important build-up of government debt. Although from a low base, government debt-to-GDP ratios have rapidly converged to the ‘AA’ median in 2011.
More important, Bermuda’s debt/revenue ratio is high, and is deteriorating faster than its peers. Recurrent changes to the debt ceiling, withdrawals from the sinking fund to meet interest payments and the inability to implement a multi-year budget program have undermined the credibility of the fiscal policy anchor and the commitment to fiscal consolidation.
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