Bermuda Government’s debt has ticked up another $188.9 million.

The Government has repositioned part of the island’s $2.36 billion debt burden through the issuing of $665 million in 10-year senior notes.

Bob Richards, the Minister of Finance, sees it as a prudently timed manoeuvre in the credit markets.

Government needed to act to address a $199.4 million budget deficit in the current financial year.

It has locked in a 3.717 per cent rate on its new 10-year securities, which is the lowest coupon Bermuda has issued. That rate might not be achievable in a few months’ time as expectations are rising that the US Federal Reserve will hike interest rates in December, and any shift would likely be mirrored in future bond offerings.

By taking a bigger fill from outside investors than was needed to meet current budget deficit obligations, the Government is also able to refinance a $200 million, 5 per cent loan facility due next year, and repurchase $276 million of higher-coupon bonds that were to mature in 2020.

The refinancing of the loan facility will result in interest savings of $1.8 million, while the early redemption of more than half of its 5.603 per cent senior notes, due in 2020, will bring annual savings of about $3.8 million.

It is the first time Bermuda has made an early redemption of senior notes. In effect, that debt has now been rolled further down the road, albeit at a lower interest rate.

Mr Richards said the tender offer “signalled to investors that the Government has now moved to a strategic mindset in its debt management operations”.

He also said: “It is important to note that although the Government issued a total of $665 million in new bonds, the total amount of debt held by the Government will only increase by $188.9 million.”

A Government team travelled to London, New York, Boston, Los Angeles and Germany, to attract interest in the new senior notes. They met with 34 investor groups, 24 of which ultimately participated in the offering, including Bermudian investors.

Three-quarters of the investors are “top quality fund manager and insurance names”, with pension funds and central banks accounting for another 10 per cent.

The new senior notes proved attractive, and the offering was two-and-a-half times oversubscribed. Mr Richards said this was “a sign of confidence in Bermuda’s recovery”.

Asked about the timing of the new offering, he said: “We were forecasting a deficit of just under $200 million for this fiscal year, and we would have had to do some more financing anyway.

“We thought it would be a good opportunity to take advantage of market conditions. And they all seemed to come together in a successful transaction.”

When the Government announced its tender offering for the 2020 notes last month, it originally stated a maximum tender of $150 million, this was revised in light of the high demand, settling at $276 million.

For each of the notes redeemed early, the Government is repaying the $1,000 principal, together with an additional $100 and an early tender premium of $30.

Mr Richards said it is possible the Government might undertake a future early redemption of senior notes, depending on market conditions.

The island’s debt repayment schedule is daunting, and includes $1.27 billion of debt that will become due in 2023 and 2024. However, refinancing part of that debt was not the result of pressure from ratings agencies, the minister stated.

In June, Bermuda’s rating was downgraded to A2 from A1 by Moody’s Investment Service, it was the fourth time Moody’s had downgraded the island’s rating since April 2009. The agency said Bermuda’s outlook remains stable.

Yesterday, Mr Richards said: “Everything we do, we take the rating agencies into account. The rating agencies are something that we have to live with, and they are very important to us.

“But this transaction was more about market conditions, the fact that we needed to do some financing anyway and we had the opportunity to refinance some more expensive paper.”

He added: “It just goes to show that with proper financial management we can save the Bermuda Government a significant amount of money, without doing some of the less palatable things that we also sometimes need to do to keep Government afloat and keep the deficit ticking downwards.”

Mr Richards said the successful capital markets transaction “underscores investors’ positive response to the Bermuda team’s narrative of the progress Bermuda has made to date and our future plans”, which include making payroll taxes more progressive in order to yield more revenue.

Government’s new 3.717 per cent senior notes, which mature in January 2027, have been admitted for listing on the Bermuda Stock Exchange.