Finance Minister On Morgan’s Point Guarantee
[Updated] Government has provided a guarantee to Arch Reinsurance on behalf of Morgan’s Point Limited to provide credit support for a $5,000,000 loan, Minister of Finance Bob Richards said today [Dec 5] in the House of Assembly.
Last month Morgan’s Point Ltd. — the company developing the hotel at Morgan’s Point in Southampton — announced that it has received a commitment in financing from Bermuda-based international re/insurer Arch Capital Group Ltd. towards the cost of the first phase of the project.
The company said Arch’s investment, with an initial tranche of $5 million, represents lead financing from a group of other Bermuda international insurance and reinsurance companies who have expressed their interest in a similar agreement.
Speaking in the House today, Minister Richards said, “In accordance with Section 2 AA [3] of the Government Loans Act 1978 I rise this morning to inform this Honourable House of the execution of an irrevocable Government Guarantee to Arch Reinsurance Limited on behalf of the Morgan’s Point Limited.
Update: Audio of the Minister being questioned by the Opposition about the deal
“On September 13th 2013 I issued a Ministerial Statement advising that I had examined options to assist the Morgan’s Point developers, Morgan Points Limited [MPL] to obtain financing for the project, and to this end had issued a letter of comfort to MPL to confirm the Government’s strong support for the Project and willingness to provide a limited financial guaranty for the project.
“I can now confirm that Government has provided a guarantee to Arch Reinsurance Limited on behalf of the MPL to provide credit support for a $5,000,000 loan.
“This loan is for the purpose of meeting reasonable expenses incurred by MPL in connection with the First Phase of the Morgan’s Point Project including expenses relating to architecture, design, construction engineering and professional advice and services. The Government has guaranteed the full and prompt payment of the principal of and interest on the Loan.
“With the America’s Cup announcement we must do even more to attract local and foreign capital to our shores to develop our tourism product. At a Tourism Summit held last year in Bermuda it was noted that our competitors are doing a great deal to attract financing for hotel projects, some Governments are going so far as to guarantee the debt in order to finalize the acquisition of the required financing for the project.
“I am confident that if satisfactory financing is obtained this development will turn a brown field site into a stunning new resort – leading Bermuda back into the forefront of the hospitality industry. Once constructed, the project will create numerous jobs. Additionally, the total build will generate significant revenue for the Bermuda Government.”
Earlier this year, Minister of Public Works Patricia Gordon-Pamplin said that Morgan’s Point intends to construct two hotels, a boutique hotel in phase 1 consisting of 235 units and a luxury hotel with 416 keys in a later phase.
The Minister’s full statement follows below:
Mr. Speaker, in accordance with Section 2 AA [3] of the Government Loans Act 1978 I rise this morning to inform this Honourable House of the execution of an irrevocable Government Guarantee to Arch Reinsurance Limited on behalf of the Morgan’s Point Limited.
Honourable Members will recall that on September 13th 2013 I issued a Ministerial Statement advising that I had examined options to assist the Morgan’s Point developers, Morgan Points Limited [MPL] to obtain financing for the project, and to this end had issued a letter of comfort to MPL to confirm the Government’s strong support for the Project and willingness to provide a limited financial guaranty for the project.
I can now confirm that Government has provided a guarantee to Arch Reinsurance Limited on behalf of the MPL to provide credit support for a $5,000,000 loan. This loan is for the purpose of meeting reasonable expenses incurred by MPL in connection with the First Phase of the Morgan’s Point Project including expenses relating to architecture, design, construction engineering and professional advice and services. The Government has guaranteed the full and prompt payment of the principal of and interest on the Loan.
Mr. Speaker, as Honourable Members are aware Government is committed by way of various agreements to the remediation of lands conveyed to MPL for the construction and operation of a boutique style hotel, condominium residences, sewage treatment plant, and other facilities.
MPL had previously advised Government that the environmental remediation issues at Morgan’s Point were impeding its ability to secure satisfactory construction financing for Phase 1 of the project. In that regard, MPL has requested that the Government provide credit enhancement for the financing of Phase 1 of the Project in the form of a limited financial guaranty.
Mr. Speaker, it is generally not the policy of the Ministry of Finance to issue guarantees to the private sector unless the matter is of national importance. However, the island has not seen a new hotel development for some time and the Government strongly supports this Project and the economic benefits that it will bring to Bermuda.
With the America’s Cup announcement we must do even more to attract local and foreign capital to our shores to develop our tourism product. At a Tourism Summit held last year in Bermuda it was noted that our competitors are doing a great deal to attract financing for hotel projects, some Governments are going so far as to guarantee the debt in order to finalize the acquisition of the required financing for the project.
Mr. Speaker, I am confident that if satisfactory financing is obtained this development will turn a brown field site into a stunning new resort – leading Bermuda back into the forefront of the hospitality industry. Once constructed, the project will create numerous jobs. Additionally, the total build will generate significant revenue for the Bermuda Government.
Mr. Speaker, I am pleased that Arch Reinsurance has shown confidence in the project and the tourism sector and Government is delighted that it could assist in making this happen. I am sure that further commitments will come as soon as the project’s plans are fully prepared, submitted and approved.
Mr. Speaker, it is also important to note that the guarantee agreement includes conditions typically included in non-affiliated financial guarantees. As previously mentioned, this action should not be considered precedent setting and is only being considered because of the environmental remediation issues at the Morgan’s Point site.
Mr. Speaker, with the America’s Cup on the Horizon the Government is eager for the Project to proceed and succeed, and is looking forward to working with the Developer to achieve that objective.
Thank you, Mr. Speaker
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Looks like you took my advice on borrowing from our partners in IB Bob , nice, what is the interest rate on the 5 mil?
Thats the big question!
Couple of ignorant jokers…
It’s above your comprehension.
It’s a guarantee only not the actual money.
Is the 5 mil not a loan from Arch?
Bob is not borrowing anything. It is the Morgan’s point group doing the borrowing. With the guarantee from govt they can secure a much lower interest rate.
Uh, I realize that, but Bob played a major part in securing or negotiating it for this development and more in the future hopefully. I suggested to Bob before he borrowed $850,000,000 , that we should borrow from the flush coffers of the hugely successful IB sector (since we can never tax them) and I believe they have a vested interest in helping to uplift the economy further, we would surely benefit from lower interest rates dealing with our “bosom buddies” who have enjoyed continued profitability through this “downturn”(depression) while our financial condition deteriorates. He replied that the banks don’t like competition, to which I remarked that paying 0.05% interest on savings whilst lending at 7%+ is highway robbery, and competition helps foster better business practices so we should have a local (for all) bond issue, interest coming straight back to us, all while he was eagerly trying to evade talking to me. Not surprisingly, it seems he has run with an idea from a commoner he didn’t even give the courtesy of stopping to listen to and shall wear it as another feather in his cap. So, still curious how the rate compares, that ok with you?
The money is being lent to MP, not Bda Govt so he hasn’t borrowed your idea.
You have no idea what you’re talking about, do you.
Why would you care? The interest is not being paid by the government.
The best part was the revelation that the hotel brand they are in talks with is Ritz Carlton Reserve! The most exclusive level of their branding. That is fantastic news. Lets hope this really gets the momentum needed to come to fruition with the America’s Cup news. That was the news given by Bob Richards in an answer about why the guarantee had been increased by Govt from $125 million to $165 million. Good things are happening!
Funny. When the PLP borrows, guarantees or pledges public money to prop up their friends its called corruption, cronyism, friends and family and the rest. When the OBA do it, its called business. Only in Bermuda.
…and they’re off! OK I’ll humour you, what do you call overspending by $20M on a $4M golf course or spending $46M+ on a real estate development for one tenant that no one wanted or needed? That’s not what I call business, that what I call complete and utter incompetence.
PLP did not guarantee or loan, they just paid away money. Money that they had borrowed out of Bermuda’s pocket.
Please correct me if I’m wrong.
Thank you OBA for showing us all how to properly an economy and finally get us out of the dark ages
As the finance Minister has stated…..
MONEY does not grow on trees
MONEY comes from outside of BERMUDA.
Don’t know which part of that some people do not understand??????
Let us not forget the “GOLDEN RULE”
He whom has the “GOLD RULES”
Have “YOU” ever got a job from a “POOR PERSON” ????
??
The simple fact of the matter is that, even with the Govt. guarantee, the loan to MP would not have been made unless the project was believed to be viable. What the guarantee does is to reduce the cost of capital from something north of 20% (the return required for large U.S. commercial real estate development loans, if they can be found) to single-digits. Ask yourself whether this project would occur if MP’s capital cost 20% – 25%?
OBA/PLP I would suggest you both play together on this one believe me we the people of Bermuda are watching to see who really has our best interest at heart.
As Apollo Creed said to Rocky,”there is no tomorrow”.
I think it is pretty clear who has our best interests at heart
Oh I see now! The PLP does not have Bermuda’s interest at heart. Only their own gaining of political power. They need to learn from the OBA how to govern!
Way forward. You statement is correct. The PLP had 14 years to look after the people and left them unemployed and saddled with debt. They need to learn how to govern and put their “we don’t care what you think egos aside”
Paula should’ve gave Morgans Point the gaurantee instead of giving it to The Bank of Butterfield .
You obviously don’t bank with butterfield bank. If they had done what you suggest half of bermuda might have lost everything held with the bank. They had to do it.
In the House last night Minister Richards says Government now has $145,000,000 exposure to Morgan’s Point.
That is a scary fact as our hotels have lost big money – and this increases Bermuda’s unsustainable debt.
Why should public money be risked to create a profit for private investors?
Because building a Ritz Carlton is in all of our best interests. The reason for the guarantee is because of the pollution left on the 250 acre site. impossible to get investment. This move has made this project go to the next stage. AC will probably push it to the point of actually happening. Meaning hundreds millions of dollars and hundreds of jobs.
It doesn’t increase our debt at all.
The answer to the question why, is that it will create jobs.