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Aecon’s airport stake will be debt capital

Project financing: Bob Richards says the island would likely have taken a hit from ratings agencies if we had tried to borrow the full sum for a new airport (File photograph by Akil Simmons)

Canadian developer Aecon’s 35 per cent stake in Bermuda’s proposed new airport terminal will come primarily from borrowing rather than from equity capital, according to Bob Richards, the Minister of Finance.

The minister added that the island would likely have taken a hit from ratings agencies if the Bermuda Government had sought to borrow the full sum on its own.

Mr Richards told The Royal Gazette that the new terminal, which will be built by a special purpose company called Project Co, will be backed by others as well as Aecon, which will have a 35 per cent minimum equity.

“They will also be looking for other equity partners to finish off the equity ownership of Project Co,” the minister said. “But most of the capital for the terminal will be debt capital, not equity capital. It will be borrowed by Project Co, as a bond issue in international markets.”

Institutional investors will be able to invest as partners with Aecon, he said, or invest in the debt.

“The equity amount is a small piece of the total finance. Aecon will have to invest their own cash to the extent that they will at least have to own 35 per cent of the equity. But the equity will be a small part of the capital.”

Mr Richards spoke to The Royal Gazette in the wake of details given on the project’s financing, in response to parliamentary questions. He stressed that “the only thing Aecon will own — or have an equity ownership in — is Project Co, the company that has the management contract”.

“They will not have any equity ownership in the airport or the terminal itself. That will continue to be 100 per cent owned by the Government of Bermuda.”

MPs heard on Friday that the profit target for a new airport terminal was estimated at about 15 to 16 per cent.

“When you invest in a project, you want to have a target — a way to return on your investment,” he said. “That is not the same as the interest rate that the Bermuda Government would pay.”

Mr Richards said that the Opposition had implied that the Government “could borrow money for a lot less than 15 per cent”, adding: “But we’re comparing apples and oranges.

“The 15 to 16 per cent is the return on equity, that Aecon can get on the equity portion.

“What if the Bermuda Government were to borrow the money, $250 million, and just build it the old-fashioned way? We would get downgraded by S&P and Moody’s, we estimate by two notches.

“In being downgraded, we would have to pay more interest on the amount of money that the Government itself owes. And if we get downgraded, the local banks get downgraded too.”