The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Nassau’s major cargo port says it has eliminated the possibility of any tariff rate increase by agreeing a refinancing of its near-$31m preference share debt that will slash interest costs by some $4.5m.

Dion Bethell, Arawak Port Development Company’s (APD) president and chief financial officer, told Tribune Business that the preference shareholders will be repaid their principal within 90 days after agreeing to replace their capital with bank debt carrying an interest rate that is some 2.4 percentage points lower.

“When we came to market with those preference shares they were at 5.5 percent, and we’ve been able to negotiate a more favourable rate at prime minus 1.15 percent with a cap not to exceed 4.75 percent,” the Nassau Container Port chief explained.

Given that the Bahamian prime rate is presently at 4.25 percent, this will slash APD’s long-term interest (debt servicing) costs from 5.5 percent to 3.1 percent once the $30.856m preference share capital outstanding at end-June 2022 is repaid to its investors.

“The difference on that $30m is substantial in terms of the interest savings to the company and, in effect, it’s common shareholders,” Mr Bethell. “We’re estimating, for the option we considered, to save approximately $4.5m over the life of the facility.

“Given the times we are in, we have to find ways to reduce costs as opposed to increasing rates. This is one option that we felt was best for the company and its shareholders at this time.

“It gives APD an opportunity to obtain lower financing costs on its debt. If you hold preference shares, you’d like to hold that for longer at the higher rate of 5.5 percent, but we have always been prudent in managing our expenses and sought to keep our tariffs down. One way we’ve been able to do that is through refinancing of the preference shares at lower rates.”

The interest savings from the preference shares’ replacement will be spread out over 12 years, which works out to a $375,000 annual reduction in APD’s debt servicing costs. Asked whether APD’s tariffs would have had to increase in the absence of the refinancing, Mr Bethell admitted this was a possibility, which means an increase in shipping costs that would have had to be passed on to Bahamian consumers has been avoided.

“That is not in the plan for the coming year’s budget; there is no increase in rates,” he told Tribune Business. “Given the [container import] volumes as they stand, an increase was something we would have had to look at, or we may have been able to utilise other means to manage our costs, but the intent has never been to increase our tariffs.

“We have a mechanism in place that guides us to do these increases, and given the volumes we may have had to had we not been able to explore this option.” Mr Bethell confirmed that the bank debt, which will refinance the preference shares and pay out the investors, is coming from either Royal Bank of Canada (RBC) or CIBC FirstCaribbean International Bank (Bahamas), although he did not specify which one.

Financial industry sources, speaking on condition of anonymity, said the Canadian-owned banks have been approaching companies and offering loans to replace existing preference share debt in a bid to reduce the surplus liquidity clogging their balance sheets. 

These surplus assets currently stand at over $2bn industry-wide, and in the absence of solid lending opportunities post-COVID-19 some banks are becoming increasingly eager to put them to work and are getting creative to find borrowers and generate returns.

Tribune Business was informed that RoyalStar Assurance, the property and casualty underwriter, is also seeking to refinance its own $10m preference share debt with cheaper bank loans. Anton Saunders, RoyalStar[’s managing director, confirmed that the insurer is “looking at all options” for its financial and capital structure, but declined to comment further.

“We are looking at all of our financing of our debt and our preference share debt,” he said. “We’re in negotiations on all sides.”

Mr Bethell, meanwhile, said Bahamian Prime would have to rise to 5.85 percent for the 4.75 percent “cap” on its bank interest to come into play - something he described as “very unlikely any time soon”. He added of the refinancing: “It improves or cash flow.”

APD has to give the preference shareholders 90 days’ notice that their investments will be redeemed. These were sent out last week, and the bank debt will be unsecured just like the preference shares.