By Neil Hartnell
Tribune Business Editor
The “fully subscribed” Nassau Airport Development Company (NAD) offering has raised the bar on what the Bahamian capital markets can generate, an investment banker believes.
Michael Anderson, pictured, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business that the $73m capital raise for NAD was “a good confidence booster” given that it represented “$10m more” than previously raised in a single Bahamian debt financing issue.
Confirming that funds were still coming in as the offering closed on Friday, Mr Anderson said the target amount had dropped slightly after the Lynden Pindling International Airport (LPIA) operator decided to pay around $4m of interest owed to holders of the existing bonds from its own cash reserves.
Those investors, who hold what is NAD’s second-tier participating debt tranche, will be paid out on New Year’s Eve by the money raised in this latest offering, for which RoyalFidelity and CIBC acted as advisers and placement agents.
Mr Anderson, disclosing RoyalFidelity’s belief that the Bahamian capital markets are capable of raising around $120m in combined debt and equity offerings in any given year, said the NAD offering’s outcome provided a good reflection “of where the market is”.
“We’re just getting in the final amounts and tallying it all up,” Mr Anderson told this newspaper. “We’ll definitely meet the requirement. We’re basically fully subscribed for the offering.
“NAD decided to reduce the amount. They decided to use some of their cash to pay the interest rather than raise it through debt. As a result, there was a $4m reduction in the amount we were trying to raise. It was just under $78m, and we went back to raising $73m after they decided to pay the interest direct from the cash they had on hand.”
The RoyalFidelity chief added that the NAD debt offering had been “very well received” by Bahamian investors, especially given its timing in the weeks leading up to Christmas - a traditionally quiet time for capital raising.
“It’s one of the biggest transactions in the market to-date,” Mr Anderson said. “The market has so much liquidity in it, so it’s hard to know how much you will get in at the last. We’re pleased to get to the $70m level.
“It gives you confidence as to what future amounts might be raised. It goes to show. We’ve slowly increased the amount of debt you can get out of the markets over the years. We’ve had $60m in the Cable Bahamas transaction, then did a $55m raise for Aliv early this year.
“We’ve had large issues around $55-$60m, but never before did a $70m raise. It goes to show there’s $10m more out there than we previously ever got to. This is a good confidence booster. Most transactions never get close to this; they’re in the $10-$20m range, sometimes $30m.”
Mr Anderson said investors, especially institutions such as pension funds, mutual funds and insurance companies, will now need time to build back their surplus cash positions before they look for fresh investment opportunities in the capital markets.
“The market capacity is somewhere we believe in the region of $120m,” he told Tribune Business. “Once you take $70m out, $50m is left until they build up their capital again.”
While acknowledging that the timing of the NAD offering so close to Christmas was not ideal, Mr Anderson said the placement agents “didn’t really have much choice” since holders of the existing senior participating debt needed to be repaid by 2018 year-end.
“There’s still liquidity in the market and people are willing to invest,” he added, noting that this had been tested by “more frequent” Government Registered Stock debt offerings over the past six months.
The task facing RoyalFidelity and CIBC was made much easier by the National Insurance Board’s (NIB) decision to roll over its investment in the existing participating debt into the new 7.5 percent fixed-rate securities.
NIB holds close to half of the existing $139.1m participating debt securities, and maintaining its holdings at their current level has sharply reduced the new capital that RoyalFidelity and CIBC have to raise.
The refinancing is designed to reduce NAD’s debt servicing costs, and boost its cash flow, by replacing existing debt that carries a two percent fixed rate and 11 percent floating rate - 13 percent in total - with new securities priced at 7.5 percent.
The Lynden Pindling International Airport (LPIA) operator was frequently deferring payment of the “floating” 11 percent and rolling it over, meaning it was accruing as a bill that has to be paid at some point in the future.
NAD’s total outstanding debt stood at $522m as at end-June 2018, with the participating debt accounting for $125.3m of that sum then. The most senior debt tranche added a further $396.7m. with the airport operator’s total cash on hand pegged at $57.8m.
NAD’s financial statements for the year to end-June 2018, released to investors as part of the offering materials, reveal that its net comprehensive loss fell by almost $10m year-over-year - dropping from $14.153m to $4.371m as it slashed losses by some 70m percent.
The improved financial performance was driven by increased passenger traffic stemming from Baha Mar’s full opening, plus fee increases, both of which contributed to significant hikes in passenger processing and facilities fees.
Passenger facility charge revenue grew by 15.5 percent or over $7m, rising from $45.464m to $52.508m, while processing fees were up by 51.4 percent from $7.525m to $11.396m. As a result, total operating revenue jumped from $77.028m to $89.396m, a 16 percent rise that put NAD closer than ever before to covering both operating expenses and $68.473m in financing costs.