HAMILTON, Bermuda, June 28, CMC – The Bermuda government, battling to cope with a sluggish economy and rising debt, has announced it has raised nearly half a billion US dollars in a bond sale that was four-times oversubscribed.
But the opposition One Bermuda Alliance (OBA) said a downgrade of Bermuda’s credit rating by international ratings agency Fitch announced on the same day will cost taxpayers 15.5 million dollars in extra interest payments on the bond issue.
The downgrade came in what the OBA said was a “damning report” by Fitch.
The largely international investors who bought the 475 million dollars of ten-year notes will be paid an interest rate of 4.13 per cent.
The Finance Ministry said that 180 million dollars of the proceeds represents new debt. This moves the island’s net borrowings to around 30 million dollars short of the island’s legislated debt ceiling of 1.45 billion dollars.
Most of the money raised will be used to refinance shorter-term debt carrying a higher interest rate than the notes sold in order to cut borrowing costs.
There was no shortage of buyers after the deal was announced just before 10 a.m. in New York on Tuesday. Within an hour, demand was approaching 500 million dollars.
The final order book totalled 1.3 billion dollars, representing a four-times oversubscription.
This “enabled the government to both tighten initial price guidance and upsize the transaction”, the finance ministry said.
The sale follows a “road show” across Europe and the United States, which involved finance ministry officials courting investors.
The ministry said more than 106 investors placed orders, from countries including Austria, Belgium, Bermuda, Brazil, Chile, France, Germany, Hong Kong, Israel, Italy, Luxembourg, the Netherlands, Singapore, Switzerland, the United Kingdom and the United States.
Government debt has skyrocketed over the past five years and, according to the bond sale prospectus, net debt stood at 1.24 billion dollars before Tuesday’s sale.
At a news conference on Wednesday, Shadow Finance Minister Bob Richards blamed “mismanagement of the public purse” for the downgrade and claimed that Fitch had cast doubt on government’s credibility and lack of a plan to deal with the mounting public debt.
Fitch downgraded Bermuda sovereign bonds by one notch to AA from AA+, the level it previously stood at in 2006.
“Before the downgrade, existing Bermuda government bonds yielded 3.81 per cent,” Richards said.
“After the downgrade the new issue yield was 4.138 per cent, an increase of 0.33 per cent. With the issue size of 475 million dollars the cost of the downgrade to Bermuda taxpayers was 15.5 million dollars.”
Richards said Fitch’s “damning report” had issued a thinly-veiled threat that without a more disciplined approach to public finances, another negative judgment would follow.
He claimed that government was leading Bermuda “into a deeper and deeper financial hole – a hole that will take decades to climb out of”.
Richards, who appeared at the news conference alongside OBA leader Craig Cannonier, said a combination of pro-growth policies and the cutting of wasteful government spending was the key to getting out of the current fiscal predicament which has seen Bermuda in recession for
the past four years.
As a general election looms, Richards also said an OBA government would achieve spending cuts without redundancies, rather reducing the public sector workforce through attrition.
Latest opinion polls put the year-old OBA ahead of the Progressive Labour Party, which has been in power since 1998.