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Bahamas Downgrade Hits Cruise Port Costs

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Nassau Cruise Port.

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ sovereign credit downgrade has increased the Nassau Cruise Port’s financing costs to a level “never” considered just 90 days ago, its top executive has revealed.

Michael Maura, the cruise port operator/developer’s chief executive, told Tribune Business he and the company’s financial advisers had never believed they would have to price its just-launched $130m bond issue with an eight percent interest coupon until the COVID-19 pandemic struck.

Anthony Ferguson, president of CFAL, which is the lead placement agent for the bond issue, explained that Standard & Poor’s (S&P) decision to further downgrade The Bahamas’ sovereign debt below “investment grade” status - coupled with Moody’s move to put this nation “under review” to follow suit - had immediately sent the price of the government’s US dollar debt soaring in secondary markets.

He said the interest rate attached to this debt had “gone extremely high right after the downgrade”, jumping from the five to six percent range to eight percent, to reflect the increased risk associated with investing in Bahamian sovereign debt.

Given that the government’s debt typically acts as the benchmark against which all other Bahamian debt capital raises in international markets are priced, Mr Ferguson explained that the Nassau Cruise Port had no choice but to increase the interest coupon attached to its bond to eight percent - especially since $50m will be in US dollars raised from overseas investors.

“Ninety days ago I never thought we’d be at eight percent. I never would have contemplated eight percent,” Mr Maura told this newspaper, adding that other Bahamas-based entities that have obtained or are seeking international financing - such as the Nassau Airport Development Company (NAD) - will also likely experience similar pricing/cost pressure as a result of the sovereign downgrade.

“If you look at Bahamian Prime [we’re priced] 375 basis points above,” Mr Ferguson added. “It’s a significant margin, a fair margin, and we did not want the US rate to be different from the Bahamian dollar rate as happened with NAD. Everyone will have the same risk dollar in it and will be compensated the same.”

The Nassau Cruise Port’s financing costs associated with Prince George Wharf’s $284m transformation, including upfront fees and interest expenses during construction, are now projected to be $34.3m.

A passenger facility charge (PFC) levied on all users of the cruise port will finance repayment of the $130m bond and an additional $80m worth of debt to be raised in 2021. The levy, which was $4 per head in 2019, is being increased to $5.50 this year and then to $8.50 per person in 2021. From 2022 onwards, all increases will be linked to inflation as measures by the consumer price index (CPI).

Any year-over-year increases greater than 5 percent have to approved by the Government as part of the agreement struck between the Government and Global Ports Holding for the cruise port’s redevelopment. While the CPI’s typical average increase is 1.5 percent, Mr Maura said the need for government approval will likely come into play due to the rise in global inflation sparked by the COVID-19 pandemic.

“The more important thing for bondholders is that 85 percent of revenues will come from the passenger facility charge,” Mr Ferguson said. “It’s not a function of exorbitant rents. Those rents for waterfront property are very low.”

Mr Maura added that the annual rental rate for Nassau Cruise Port’s retail, food and beverage and other tenants will be $46 per square foot, which he described as “very low” compared to prevailing rates that are charged on Bay Street.

He argued that if Nassau could increase its per capita passenger spend by around $100 to match the $190 earned by St Maarten, the Caribbean leader, it would inject an extra $400m per annum into the city’s economy - and its Bahamian-owned businesses and employees - once passenger numbers recovered following the COVID-19 fall-out.

And Mr Maura said The Bahamas had little choice but to invest substantially in upgrading a Nassau cruise port that had been “falling apart for years” given the increased competition from the cruise lines’ Bahamian private islands and southern Caribbean rivals. Carnival’s plans to resume sailing from Florida as of August 1 have also added to the urgency.

“Our major gateway for tourism coming into The Bahamas, the busiest gateway in the country, its facilities have been falling apart - and falling apart for several years,” Mr Maura told Tribune Business.

“When you consider that spending opportunity of an extra $100 to match what St Maarten gets, and the increased competition from the private islands, increased competition from the southern Caribbean ports, yet we have this decaying tourism infrastructure in front of our largest tourism gateway, we have to do something.”

Pointing out that the cruise lines will have pumped a collective $1bn into upgrading their Bahamian private islands, Mr Maura said Nassau’s competitiveness as a cruise port destination is under further pressure from the likes of Barbados, St Maarten, Antigua, San Juan, Tortola and Havana - all of which are “chasing new port opportunities”.

“A big part of then justification for this project is you have the cruise companies in The Bahamas for those private islands, and exit surveys from cruise passengers saying Nassau is boring, Nassau is dirty,” he added. “Bahamians are saying that, too. Nassau is dying in front of all of us, and the cruise lines are putting $1bn into their private islands and the Caribbean ports are moving ahead.

“Nassau had to do something. For passenger spend St Maarten is enjoying $190 per head. The US Virgin Islands is at $150. We here in Nassau are in the $80 range. The average in the Caribbean is around $90. We look at this as an opportunity to drive this passenger traffic up.

“And if we can find $100 in incremental per capita passenger spending to get where St Maarten is, that’s $400m in extra spending into our local economy. That’s a huge part of the economic lift this project brings with it for Bahamian food and beverage operators, taxi drivers, hair braiders, straw vendors.”

Some observers had questioned pre-COVID-19 whether the cruise lines will continue to call on Nassau with the same frequency and passenger volumes as before due to both the presence of their nearby private islands and the fact their bid to run the capital’s cruise port was rejected in favour of Global Ports Holding.

Comments

proudloudandfnm 4 months, 3 weeks ago

At this point the best move is probably to put this project on hold for the next year or two. Jumping in right now is not rational. Nobody knows how the cruise industry will be affected by this pandemic. I have never been a fan of cruising, it's just not me but I don't see the masses flocking back to these floating petrie dishes right now...

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K4C 4 months, 3 weeks ago

assuming they will financially survive without massive government bailouts

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Clamshell 4 months, 3 weeks ago

Well said. We’re gonna lock in to pay 8% interest to upgrade facilities for an industry whose short-term future is a big question mark? Stooopid.

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Well_mudda_take_sic 4 months, 3 weeks ago

The Bahamas taking on risks associated with any new debt at this time is patently absurd to say the least given the near term financial outlook and longer term uncertainties of the cruise line industry and our country. All that was planned here could have been justifiably postponed to an indefinite date as a result of the great uncertainties caused by the Covid-19 crisis, with no serious legal consequences. But Anthony Ferguson (CFAL) was obviously determined to ram this bond offering down the throat of the Bahamas government so he could earn his exorbitant front end fees and commissions.

One can only wonder why Minnis and D'Aguilar didn't insist the entire Prince George Wharf project be put on ice indefinitely given the very precarious financial situation of both the Bahamas and the cruise line industry caused by Covid-19.

The current business model of the cruise line industry is most unfair to the Bahamas and is definitely not the answer for rebuilding and then further developing our economy to meet the future needs of the Bahamian people.

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realitycheck242 4 months, 3 weeks ago

institutional Investors and high net worth individuals will buy those bonds. The Bahamas Gov will pay nothing. This is the time now to upgrade the cruise while there is no foot traffic and the pier's are empty.

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Well_mudda_take_sic 4 months, 3 weeks ago

And who's going to be on the hook to repay the bonds in the event of default by the 'issuer' - better still who will end up owning the Prince George Wharf (PGW) in such an event? Will the PGW really remain a strategic national asset, under government ownership and control, if the port project and/or the cruise line industry go belly up, as might well happen?

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bcitizen 4 months, 3 weeks ago

This is a very risky industry to be investing money into right now.

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