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Government to roll over up to $424m of debt

Debt rollover: the Bermuda Government has started tender offers for up to $424 million of its debt

The Government of Bermuda has announced tender offers for up to $424 million of its debt.

This means that the Government has offered to return principal to creditors early, at a certain price and time.

The offer applies to all of its 5.603 per cent notes due 2020, amounting to $223.935 million. A tender offer will also apply for up to $200 million of the Government’s notes due in 2024, which carry a 4.854 per cent coupon.

The announcement was made on PR Newswire, a global press release distribution service.

The statement indicates that the Government will also be making a new notes offering, intended to settle before or at the same time as the tender offers, indicating that the debt is being rolled over. The amount intended to be raised through the sale of new notes is not specified, nor the interest rate they will pay investors.

Curtis Dickinson, who succeeded David Burt as Minister of Finance last week, said in an e-mailed response to The Royal Gazette: “As announced in the 2018-19 Budget, the Government will have to incur new borrowing of $89.7 million to finance the 2018-19 deficit.

“The Government has also decided to refinance an outstanding $135 million credit facility that matures in 2019, and subject to market conditions, refinance current government bonds maturing in 2020 and 2024.

“Following an RFP process, HSBC and Citibank have been engaged to manage the issuance of the debt required to meet the mentioned obligations.”

The tender offers opened yesterday and will expire at 8am on November 15.

Two years ago, the Bermuda Government also made an early redemption of senior notes to refinance the debt at a lower interest rate.

On that occasion, it returned $276 million of principal to investors of its 5.603 per cent senior notes and sold new ten-year notes with a much lower coupon of 3.717 per cent, saving millions of dollars on debt servicing costs.

Since then, interest rates have risen and the US Federal Reserve is expected to raise its influential Fed Funds rate by a quarter of a percentage point next month and another three times next year.

The Ministry of Finance may see now as an opportune time to lock in a favourable rate on a large slice of its debt for the next ten years, before the rate rises take effect.

According to the Government’s debt repayment schedule, outlined in the Budget Statement in February, no debt repayments are due in this fiscal year, but $215 million is due in 2019-20 and a further $100 million in 2020-21.