Two temporary loans, negotiated through a New York financing firm, were taken out earlier in the Cayman Islands government’s budget year, according to information received from Premier McKeeva Bush’s office this week.
One loan of US$92.5 million was arranged via Cohen & Company Capital Markets LLC with the funding provided jointly through two banks – one in the Cayman Islands and another which is Caribbean-based.
The second loan, also arranged through Cohen, was for US$36 million and was provided by a European bank.
Government paid back the smaller loan through “cash and revenue sources”, according to a statement received from the Ministry of Finance in response to questions.
The US$92.5 million loan is still outstanding and due to be repaid in April 2011, the ministry stated.
“Cohen & Company was paid fees for arranging the funding,” The ministry’s statement to the Caymanian Compass read. “The fees paid would have been paid to any entity doing the work.”
“These temporary loans were needed regardless of which entity was chosen to do a bond issue,” the ministry’s statement continued. “In fact, the bid documentation…that was issued made it clear that a ‘bridge/temporary loan’ was required for all bidders.”
The government declined to immediately release the fee amounts paid to the Cohen firm, claiming the information was privileged and could prejudice negotiations for future fees that financiers would request from government.
Premier Bush announced earlier this month that the government had scrapped a previous agreement with the New York firm mainly because savings promised through the use of Cohen & Company had not materialised.
Although it declined to release the fees paid to Cohen and Company, the Ministry of Finance said it did not necessarily intend to keep those amounts secret forever.
“The government is willing to provide details in respect of the payment fees to Cohen & Company once a point in time is reached when such disclosure will not prejudice future fee levels/rates which financiers will request from government.”
The Cayman Islands still has authorisation from the UK and Legislative Assembly to borrow up to US $185 million through 30 June. It did not state how the amount of the US$92.5 million loan would be paid off by April 2011.
Premier McKeeva Bush has said, in any case, that further borrowing would be needed to get Cayman through to the end of its budget year, which is 30 June.
However, he said less money would need to be borrowed than first envisioned, partly due to the government’s financial performance in the first half of the fiscal year.
Why Cohen was dropped
Mr. Bush said that financing rates offered by Cohen & Company were calculated to be about US$24 million less than the financing offer accepted by government’s Central Tenders Committee, which recommended that government take a deal offered in a joint bid by two locally-operating banks.
“Key amongst the representations made to Government was that a 4.5 per cent interest rate cap could be obtained, at a certain price, so that the rate of interest that Government would pay on its current year borrowing would never exceed 4.5 per cent,” the Premier said earlier this month.
“Government has now been advised that the 4.5 per cent interest rate cap cannot be obtained at the price previously represented to Government.
The increase in the price of the interest rate cap is of such magnitude that it would wipe out the cost-minimisation advantage that had been agreed.”
That increase was the main reason given for cancelling the financing arrangement with Cohen.
The initial announcement of the financing arrangement was criticised in October by opposition party lawmakers after Mr. Bush’s government overrode the Central Tenders Committee recommendation with the selection of Cohen & Company as the successful bidder to provide the financing.
In November, former Opposition Leader Kurt Tibbetts accused Premier Bush of contravening the law and established bidding practices to obtain the US$185 million financing arrangement.