The Tribune

BY NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian taxpayers have quietly been placed on the hook for a further $105m in government borrowing guarantees needed to underwrite new debt, refinance existing liabilties and pay-off prior defaults by the Bahamas Mortgage Corporation and Education Loan Authority (ELA).

Three borrowing resolutions, part of a seven-strong package introduced in, and passed, by the House of Assembly immediately after the Budget debate completed on Thursday, June 18, commit the Bahamian people - in their capacity as taxpayers - to step in and pay these debt obligations should either agency default on repayment to lenders who include the National Insurance Board (NIB) and Royal Bank of Canada (RBC).

Opposition MPs contacted by Tribune Business after it uncovered the borrowing resolutions, which have now been approved by Parliament, told this newspaper that they were another example of the Davis administration “governing in the dark”. Adrian White, the St Anne’s MP and leader of Opposition business in the House, said he and fellow FNM MPs were only told about the resolutions on the day they were passed - right at the end of the Budget debate.

While the possibility of government guarantees for both Mortgage Corporation and Education Loan Authority financing during the 2026-2027 fiscal year was signalled in the Budget documents, the Government did not confirm its intentions to proceed until the last minute. “A Government guarantee refers to debt obligations for which the Government of The Bahamas has provided a legally binding commitment to assume repayment in the event of default by the borrowing entity,” the Budget affirmed.

The first of two Mortgage Corporation resolutions underwrites the issuance of $15m in new “government guaranteed” bonds to NIB “to satisfy” the agency’s obligations to the nation’s social security system. And it also provides for the further issuance of new bonds to refinance some $61.5m of existing debt securities whose principal is scheduled to come due for repayment within the next 18 months.

The resolution also acknowledged that the Mortgage Corporation, which was established to provide loan financing that allows public officials, plus low and middle income Bahamian families, to purchase their home “has experienced financial difficulties with meeting certain debt obligations, including its obligations to NIB”.

The second Mortgage Corporation instrument, meanwhile, will enable it to raise some $7.5m in new financing from RBC Royal Bank (Bahamas) by issuing government-guaranteed bonds. And a further $11m will be released to refinance existing debt securities held by the Canadian bank - a rollover move which, if completed, would extend the date when the principal matures and comes due for repayment by three years.

However, to participate, RBC wants a government guarantee as security that its $18.5m loan will be repaid. “The Bahamas Mortgage Corporation requires capital funding to facilitate the completion of its mandate in advancing national policy objectives related to the provision of sustainable financing options, the promotion of economic development and support for housing initiatives,” the second Mortgage Corporation resolution states.

“The Bahamas Mortgage Corporation is desirous of raising capital in the sum of $7.5m through the issuance of new government-guaranteed bonds. Bahamas Mortgage Corporation is also desirous of refinancing $11m of existing government-guaranteed bonds with new bonds whose maturity dates would be extended by three years to better manager Bahamas Mortgage Corporation’s refinancing risk

“It is a pre-condition to both the raising of the new capital and the refinancing of the existing debt that the Government of The Bahamas guarantees repayment to the RBC Royal Bank (Bahamas) of the aggregate principal amount of $18.5m or any part thereof which the Bahamas Mortgage Corporation may fail to repay.” That also includes any interest due and payable to RBC on the bonds, and took the total guarantees or underwritng for the Mortgage Corporation to $95m.

The third and final resolution acknowledges that, in common with the Mortgage Corporation, the Education Loan Authority has “also also experienced financial difficulties with meeting certain debt obligations, including its obligations to the NIB” from the latter’s financing of government educational scholarships. The Authority will issue “replacement government guaranteed bonds” worth $9.75m to NIB to make good its obligations to the social security system.

Thus Bahamian taxpayers have been called upon to underwrite a combined $24.75m of past due repayments to NIB on behalf of these two government entities. One financial source, speaking on condition of anonymity, questioned whether the new NIB bonds are “captitalising” past due interest and late fees, and added: “They [the Government] are trying their best to clean up really messy balance sheet situations that exist in these entities.”

Dr Duane Sands, the Opposition’s chairman and a former Mortgage Corporation chairman, told Tribune Business that the resolutions relating to the agency are “not surprising” given that $110m worth of bond principal it owed was due to mature and be repaid in the four years up to and including 2026.

Just 52 percent of the total principal repayment was covered by the Corporation’s ‘sinking fund’ at the end of its 2017 financial year, raising serious doubts over whether it would have the necessary cash flow and resources to meet its obligations as they became due - especially since it has a 30-40 percent delinquency rate among its borrowers.

“We are in the period now, particularly with the Mortgage Corporation, where a large number of bonds become due,” Dr Sands told Tribune Business yesterday. “This would create serious problems for the solvency of the Mortgage Corporation. I’m not surprised that they have quietly slipped this in without calling attention to what the fundamental issues are.

“Here we have a situation where the taxpayer is being forced to underwrite this. It is clearly a bad investment, yet the political patronage that arises from continued investments without dealing with the fundamental challenges of the Mortgage Corporation and, by extension, NIB, is continuing.”

Dr Sands voiced suspicions that the $7.5m raised by issuing new guaranteed bonds to RBC is to cover “every day expenses at the Corporation, which at this point is probably not generating enough to keep it as a going concern without additional funds”.

“I guess they are hoping to kick this can down the road a lot further and the consequences are felt when they are long retired,” he added. “We still haven’t realised that 2030 is right around the corner and the predicted solvency issues at NIB loom very large since nothing substantial has been done to solve the problem.

“We have set up our own sub-prime mortgage disaster in The Bahamas. The belief is that because we have done this for so long, we will continue to do well and that’s a fallacy.”

Kwasi Thompson, the Opposition’s finance spokesman and east Grand Bahama MP, told Tribune Business that he and his party “have a huge difficulty with the way the Government has presented these resolutions” and the supplementary appropriations Bill permitting it to spend an extra $250m in the just-closed 2025-2026 fiscal year.

All were presented towards the end of the Budget process, allowing little time for study and debate. “They changed the Government’s Budget projections for the previous fiscal year,” Mr Thompson added. “They just enacted where they were spending an additional $250m. It was introduced at the end of the debate when most of the Opposition had already spoken.

“They introduced them at the very end of the debate, and with this huge spending increase they didn’t have evidence that the Government would make it up in terms of revenue. The way they have done this is a tragedy. At the last minute they presented these documents without explanation. This is not how it goes. This is governing in the dark. This is not the way a government intending to do things transparently operates.”