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Finance minister keeps an eye on capital markets

Curtis Dickinson, Minister of Finance (Photograph by Blaire Simmons)

Bermuda does not need to return to the international capital markets to refinance debt this year, but finance minister Curtis Dickinson is monitoring them in case he has to “go early” to achieve a lower rate for the next chunk of maturing debt.

Some $140 million of senior notes mature in December 2022. The notes are the most expensive piece of Bermuda’s debt in terms of interest rate coupon, at 5.73 per cent. As he has done in the past, Mr Dickinson will seek to refinance that debt at a lower interest rate.

He said: “This is debt that was issued a long time ago, before we started going to the public markets, and has a coupon of 5.73 per cent, so it is our most expensive piece of debt.”

There was some volatility in yields on government bonds on international markets last week, amid concern that inflation will pick-up during the global recovery from the Covid-19 pandemic.

Mr Dickinson said: “Do I think that rates are going to go up by 100 to 200 basis points over the course of the next year? I don’t think so. I’m not overly concerned about it at the moment. The rate outlook for now looks pretty stable.”

But he added: “Towards the end of the year I may need to have a rethink. We always have the option of going early if we need to. But if we do go, all we would try to do is buy the existing debt back and replace it with a similar size piece of debt, so the debt levels stay the same, but the interest costs would come down.”

In August, Mr Dickinson raised $1.35 billion from international capital markets at historically low rates.

“About $800 million of that was used to refinance existing debt that had a coupon interest rate of 6 or 7 per cent. The new debt is 2.375 per cent for $650 million of it, 3.375 per cent for the other $750 million; all told on average about 3.25 per cent. I saved money by borrowing this money and paying off the old debt,” he said.

The additional money raised, about $450 million, is to fund budget deficits.

Mr Dickinson said: “We wanted to lock-in the pricing of that money because we did not know where interest rates were going. They could go lower, but our downside risk was fairly low, the upside risk was substantial.

“We took that money and put it in the Sinking Fund, because it is managed by professional managers. We put it there to hold it for ’as and when’ we need it, because we are going to have deficits over the course of the next two or three years.”

The Sinking Fund balance will be about $348.8 million on March 31.

The 2021 Budget Statement estimates a budget deficit of $124.7 million for 2021-22, and a budget deficit of $40.8 million for 2022-23, followed by a budget surplus of $2.6 million in 2023-24.

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Published March 03, 2021 at 8:00 am (Updated March 02, 2021 at 4:26 pm)

Finance minister keeps an eye on capital markets

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