Minister: Debt Ceiling To Increase To $3.5 Billion

July 17, 2020 | 14 Comments

“I will table an amendment to the Government Loans Act 1978 to increase the debt ceiling by $600 million to $3.5 billion,” Minister of Finance Curtis Dickinson said, adding that this is “set at a level to enable funding of the Government and its economic recovery over the next 2-3 years.”

Speaking in the House of Assembly today [July 17], the Minister said, “At the end of March 2020, net debt stood at $2.68 billion, an increase of approximately $280.0 million over the July 2017 balance. Mr. Speaker, it is important to put this increase in additional indebtedness into its proper context and set out for Honourable Members the primary components of this increase:

  • Approximately $187.0 million related to payment of obligations under the Caroline Bay project guarantees and related costs;
  • $64.2 million related to the funding the 2018/19 Sinking Fund contribution; and
  • the remainder to finance capital expenditures in fiscal years 2017/18, 2018/19 and 2019/20.

“I provide this information for context to illustrate that, prior to the COVID-19 pandemic, we were executing on our plan to reduce fiscal deficits, generate budget surpluses and paydown debt while at the same time delivering important public services and a secure, sustainable future for all citizens of Bermuda.

“The Government intends to conduct a public bond issuance in the international capital markets. The gross proceeds to be raised will depend on market conditions but may be in the range of $1.0 – $1.25 billion.

“The proceeds from the sale of the contemplated bond issuance are intended to be used to, among other things, [i] finance the anticipated deficits for fiscal years 2020/21; 2021/22 and 2022/23; [ii] refinance the credit facility associated with the Caroline Bay project; [iii] refinance the credit facilities associated with general liquidity needs and the COVID-19 Emergency measures; and [iv] depending on market conditions liability manage tranches of existing indebtedness.

“The proposed amendment will provide for the authority of the Government to borrow up to the newly established limit as we navigate our way through the COVID-19 pandemic and beyond. The proposed statutory debt ceiling of $3.5 billion is set at a level to enable funding of the Government and its economic recovery over the next 2-3 years.

“Government remains committed to prudent and sensible borrowing, this borrowing strategy will allow the Government to lock-in historically low rates, potentially reduce our interest expense on some of our current bonds and take advantage of strong current global demand for investment grade assets.”

The Minister’s full statement follows below:

Mr. Speaker, I rise this morning to inform this Honourable House of the status of Government borrowing and the requirement to increase the authorized debt ceiling. The Government of Bermuda’s borrowing activity is conducted in accordance with the requirements of the Government Loans Act 1978 which sets a legal limit on loan and loan guarantees. Accordingly, later this morning, I will table an amendment to the Government Loans Act 1978 to increase the debt ceiling by $600 million to $3.5 billion.

Mr. Speaker, when this Government took office in July 2017, net debt stood at $2.397 billion and the debt ceiling at $2.5 billion. We came in with a focus on prudently managing the country’s finances on behalf of the people of Bermuda and committed ourselves to a strategy of not increasing the debt ceiling. We were successful in honouring that commitment in the 2017/18 and 2018/19 fiscal years and were on track to do so again in fiscal 2019/20.

Unfortunately, Mr. Speaker, in July 2019, in anticipation of borrowings to fund the purchase of indebtedness related to the guarantees associated with the stalled Caroline Bay project, the debt ceiling was increased by $250 million to $2.75 billion. Government subsequently entered into a $200 million short-term credit facility with local financial institutions to: [i] purchase the project’s Tranche B and Tranche C loans, [ii] acquire the claims of the project’s general contractor and local subcontractors, [iii] fund expenses associated with implementing a remediation plan to protect the physical assets on the site and [iv] fund expenses associated with professional advisers.

Mr. Speaker, at the end of March 2020, net debt stood at $2.68 billion, an increase of approximately $280.0 million over the July 2017 balance. Mr. Speaker, it is important to put this increase in additional indebtedness into its proper context and set out for Honourable Members the primary components of this increase:

  • Approximately $187.0 million related to payment of obligations under the Caroline Bay project guarantees and related costs;
  • $64.2 million related to the funding the 2018/19 Sinking Fund contribution; and
  • the remainder to finance capital expenditures in fiscal years 2017/18, 2018/19 and 2019/20.

Mr. Speaker, I provide this information for context to illustrate that, prior to the COVID-19 pandemic, we were executing on our plan to reduce fiscal deficits, generate budget surpluses and paydown debt while at the same time delivering important public services and a secure, sustainable future for all citizens of Bermuda.

Mr. Speaker, in April 2020, in anticipation of the negative impacts of the COVID-19 pandemic, the Government raised the debt ceiling a further $150 million to $2.9 billion to ensure that it had the necessary liquidity to fund a variety of public health and emergency financial measures to support Bermuda’s people and economy. In May 2020, the Government entered into a $150 million credit facility with local financial institutions. To date, approximately $80 million of this facility has been drawn to fund emergency measures associated with COVID-19.

Mr. Speaker, I can now advise Honourable Members that the Government intends to conduct a public bond issuance in the
international capital markets. The gross proceeds to be raised will depend on market conditions but may be in the range of $1.0 – $1.25 billion.

Mr. Speaker, the proceeds from the sale of the contemplated bond issuance are intended to be used to, among other things, [i] finance the anticipated deficits for fiscal years 2020/21; 2021/22 and 2022/23; [ii] refinance the credit facility associated with the Caroline Bay project; [iii] refinance the credit facilities associated with general liquidity needs and the COVID-19 Emergency measures; and [iv] depending on market conditions liability manage tranches of existing indebtedness.

Mr. Speaker, any funds borrowed that are not required in the current fiscal year or for liability management purposes are to be invested in the Sinking Fund.

Mr. Speaker, the proposed amendment will provide for the authority of the Government to borrow up to the newly established limit as we navigate our way through the COVID-19 pandemic and beyond. The proposed statutory debt ceiling of $3.5 billion is set at a level to enable funding of the Government and its economic recovery over the next 2-3 years.

Mr. Speaker, in closing Government remains committed to prudent and sensible borrowing, this borrowing strategy will allow the Government to lock-in historically low rates, potentially reduce our interest expense on some of our current bonds and take advantage of strong current global demand for investment grade assets.

Thank You, Mr. Speaker.

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Comments (14)

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  1. Jack Archer says:

    when’s the next flight out?

  2. International Bond Offering says:

    Let’s hope that the Government of the people, give the people the opportunity to invest in this bond for a return versus giving all of the interest to overseas institutions.

    Looking out for our people extends to all aspects of GVT actions not just emotive talking points.

    Can the MinFin comment on if this will have any impact on Bermuda’s credit standing?

  3. trufth says:

    To be clear, $3.5 billion = $3,500,000,000

    To be clear, $3.5 billion = “Three BILLION five hundred MILLION dollars”

    To be clear, $3.5 billion = 3,500 stacks of a million dollars each.

    Our children and their children are in unfathomable debt.

    Who shall they send thank you notes to??

    • sandgrownan says:

      Ewart Brown, Paula Cox and Alex Scott. Utter, utter Muppets, all of them.

      • Joe Bloggs says:

        I would remove Alex Scott from that list but otherwise I agree.

        • Sandgrownan says:

          Berkeley fiasco? Ring any bells?

          The list over project overspending is truly staggering and there was complete lack of control or good financial governance.

      • Sad says:

        BLACK LIVES DON’T MATTER when it blogs from your racist mind set. Even a blind man can see from all the blogging you perform you have a serious issue with black Bermudians. You give the OBA no justice as a supporter and later they wonder why the black voters stop trusting them resulting in a 25 vs 11 defeat.

        Its because of PEOPLE LIKE YOU in that party which cause black families to depart & don’t deny your not a BIG supporter. Dont’ worry Mr. Craig Cannonier will help you win the next election so please hold your breath.

    • Or a little over $57,000 says:

      for every person in Bermuda if we all had to chip in to pay this back.

      Since its being raised for the benefit of the “people of Bermuda”, its our financial obligation to settle!!!

      The late and very well respected Mr. Burchall used to tell us about this ALL the time, did we listen? I think not.

      Remember Nanci?

  4. Ringmaster says:

    $3.5 billion is very close to 100% of Bermuda’s Gross National Product which is the more accurate figure to use than Gross Domestic Product. This is past unsustainable and will never be paid down, just interest paid. If interest rates rise in the near future then it’s all over.

  5. Unbelievable says:

    Greece 2009 = Bermuda 2021 (onwards).

    If there is a snap election any time soon it will be a cynical ploy by Burt to sure up a mandate based on how he’s handled BDA’s response to the pandemic. Once he has that mandate, there is no choice for the BDA economy but to tank. Best to have the snap election now instead of losing at the polls at the next scheduled election.

    Does anyone even know where the Minister of Finance is? Where is this committee? We should be getting weekly updates on that.

  6. me says:

    wow just wow

  7. Heya says:

    Funny thing is that the payment on the debt on Caroline bay wasn’t due, but the Govt stepping in and paying it triggered the full guarantee and effectively taking on the debt. Of course by paying the $10million the govt got the land , but only a part of it, I.e. much less that they thought. I see that as a govt screw up. Happy to here facts that say this is incorrect. Obviously I haven’t seen any documents, just read the articles related to this.

    Ultimately the govt didn’t have to pay anything, it chose to. Would like to hear some More facts on this please.

    Then a relative of the finance minister got to take over the portfolio.

  8. Willsee says:

    Well 35000 working people to pay off 3.5 billion

  9. Proven says:

    About face! Now he has to contribute to the sinking fund??? What happen to balancing the budget by not contributing to the sinking fund? Bermuda should be very concerned!

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