The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government has hired CIBC FirstCaribbean to raise a $100 million “bridge financing” facility for it, with an initial interest coupon some 160 basis points below the Prime lending rate.

John Rolle, the Ministry of Finance’s financial secretary, told Tribune Business that the six-month ‘revolving’ facility was intended to give the Government “extra space” before it moves into its long-term borrowing.

The ‘confidential investor term sheet’, which has been obtained by Tribune Business, discloses that CIBC FirstCaribbean International Bank (Bahamas) has been contracted to raise $100 million in fixed-rate notes.

The six-month, short-term facility can be rolled over (continued) at maturity depending on the Government’s decision, which would be based upon market demand for these debt securities.

Interest will be paid semi-annually in arrears, and the first $100 million worth of notes will carry a dividend coupon of just 3.15 per cent. That is some 160 basis points, or 1.6 percentage points, below the present commercial bank Prime lending rate of 4.75 per cent.

That interest rate likely represents the lowest-yielding debt ever issued by the Government. Depending on market conditions, the interest coupon can be changed when the six-month ‘roll over’ point is reached.

“It’s a bridging mechanism for us,” Mr Rolle told Tribune Business, when asked why the Christie administration was seeking $100 million in short-term financing.

“It’s to give the Government more immediate options. This is a way of bridging the financing. Our principle objective here is to give the Government the extra space in the very near term before moving into long-term financing.”

The CIBC FirstCaribbean International Bank (Bahamas) term sheet was released to select institutional and high net worth investors, plus money managers, last week.

Several capital markets sources, speaking on condition of anonymity, suggested the $100 million issue was likely to be fully subscribed. They based their optimism on the high excess liquidity in the commercial banking system, standing at $1.341 billion at end-May 2014, and the absence of viable alternative investments.

One capital markets source said they understood CIBC FirstCaribbean was set to take $45 million of the issue itself. That left $55 million, which they anticipated would be absorbed by other commercial banks, with Commonwealth Bank another thought to be interested.

Another source suggested the Government was attempting to “drop its cost of funds by going for short-term paper”.

They added: “We felt there was an appetite for short and medium-term paper, and to get debt at 3 per cent, that’s a lot cheaper for them.”

Another contact told Tribune Business: “It’s a revolving six-month piece of credit and the Government are coming out with, through the Central Bank, a $200 million issue at Prime minus 1 per cent for five years.

“It looks like they’re trying to establish a yield curve” for government debt securities.

The $100 million, six-month revolving facility is the first of its kind for the Government. It normally raises short-term financing via Treasury Bills, its overdraft facility and commercial bank borrowing.

And various administrations have typically relied on long-term paper, with maturities ranging from 10-30 years, to finance the bulk of their Budgetary debt operations.

However, Mr Rolle told Tribune Business that the CIBC FirstCaribbean capital raising did not signal any major shift in the Government’s debt financing strategy.

“It doesn’t represent any fundamental shift in financing strategy,” Mr Rolle told Tribune Business. “These resources [the $100 million raised] will eventually be converted into longer term.”

Bridging loans are typically short-term debt, arranged for a period of weeks to several months, to plug financing gaps until longer-term facilities are put in place.

Given that the Government’s 2014-2015 Budget year has just started, with its fiscal plan only recently passed by Parliament, the $100 million facility’s launch timing suggests it is designed to ‘plug the gap’ until longer-term domestic bond issues are placed.

Mr Rolle gave no indication that the Government is experiencing cash flow difficulties, which would also warrant a bridge facility’s placement. However, the failure to pay a $1 million-plus bill that resulted in all electricity being cut-off to government schools on Grand Bahama has caused some observers to suggest as month.

The Financial Secretary, meanwhile, said two other overriding government goals - reducing its debt servicing costs and establishing a yield curve to price its debt - were not the main targets with the $100 million facility.

“I wouldn’t say that all of those are tied into it, but those are definitely desirable outcomes in the medium-term,” he told Tribune Business.

“In terms of financing generally, the liquidity is there in the market. We would ordinarily do our research of the market to assure ourselves there is liquidity for whatever terms the Government borrows at.”

Mr Rolle declined to confirm the terms of the purported $200 million, five-year bond said to be upcoming, or the low 3.75 per cent interest coupon.

“I can’t confirm those numbers,” he added. “They’re a bit off. I’m not sure.”