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Senior notes issuance details confirmed

The Ministry of Finance is pleased to confirm details of its recent transactions in the international debt capital markets. On Thursday, 20 August, Bermuda issued $1.35 billion of two new Senior Notes, split evenly into a 10-year maturity at a record low coupon of 2.375%, and Bermuda's first ever 30-year at 3.375%.

Overall debt outstanding increased by approximately $520 million, as a large portion of the proceeds was used to refinance existing debt that were at higher rates, including $500 million of existing Senior Notes accepted in concurrent tender offers and $331 million of short-term credit facilities with local banks. This exercise will produce current annual interest savings on existing debt of approximately $10 million, although overall interest expense will increase by $3.1 million. Total net proceeds of approximately $450 million will be deposited into the sinking fund to be used to fund anticipated deficits for the current fiscal year 2020/21 and the next two years.

Minister Dickinson commented: “As we continue to navigate our way through the COVID-19 pandemic, this borrowing strategy was essential. It allowed the Government to lock in historically low rates to help fund an economic recovery, reduce interest expense on existing debt and take advantage of strong current global demand for investment-grade assets like those of Bermuda.

Two weeks ago, we met with over 50 global investors in a 3-day virtual “roadshow”. Feedback was extremely positive on our response to COVID-19, containing the impact and prospects of an economic recovery. As witnessed last Monday, this translated into overwhelming support for the transaction. Initial orders were close to $10 billion, or about eight times the original target of $1.25 billion, resulting in not only a reduction of the final interest rates on both Notes, but also the smallest spread to 10-year US Treasuries ever achieved by Bermuda. This also enabled us to upsize the transaction to $1.35 billion. The issuance was successful by all measures, and I would like to thank the entire Bermuda team for their efforts.”

Other details and highlights of the transaction include:

• A US Treasury +170bps spread on the 10-year beat the previous record low spread of T+175bps reached on the 2029 Notes issued in November 2018. Adding to the list of achievements was pricing new 10-year Notes 15bps inside the prevailing trading levels of the 2029 Notes (8.2yrs maturity), demonstrating investors willing to buy new Bermuda bonds at tighter spreads despite longer maturity.

• Bermuda also set its first-ever long-dated issuance, pricing new 30-year Notes at a US Treasury +195bps spread. While a clear endorsement of Bermuda's prospects for the next 30 years, the spread is notable since it is flat to inside every 10-year issuance spread Bermuda has executed except for the 2029 Notes.

• Concurrent partial tender offers significantly reduced near term maturities, where $500 million in principal across maturities due in 2023, 2024, 2027, and 2019 was refinanced at lower rates

• The new issue and tender offers reduced pro-forma annual interest expense on the repurchased notes by about $6.4 million. Combined with refinancing short-term credit facilities, this totals about $10 million in current annual interest savings.

• A reduction in the Government's pro-forma average portfolio coupon of -0.59% is also expected, along with an 8.4-year extension in the entire debt portfolio's average life. The dual-tranche structure also allows Bermuda to maintain a smooth and manageable debt maturity profile.

• The combination of ever tighter issuance spreads and sizable orderbook speaks volumes to Bermuda's ongoing proactive debt management overall and current handling of the pandemic, a view clearly validated by the most relevant global market players.

The transactions closed on Thursday, 20 August 2020. Goldman Sachs & Co. LLC and HSBC Securities (USA) Inc. acted as joint-bookrunning managers, and Milbank LLP, was U.S. counsel to the Bermuda Government.

Press release from the Ministry of Finance

Curtis Dickinson (File photograph)

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Published August 26, 2020 at 10:49 am (Updated August 26, 2020 at 10:49 am)

Senior notes issuance details confirmed

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