Cayman’s debts come due

$26.4 million to be paid within year

The Cayman Islands will have to bite the “bullet” on several of its loans during the upcoming budget year, a move that could cost more than $26 million if the debts are not refinanced.  

According to Finance Minister Marco Archer, five loans taken out by the Cayman Islands Development Bank must be paid between 2015 and 2016, with three of them coming due within the 2014/15 fiscal year.  

The loans, referred to as “bullet” or “balloon payment” loans, must be paid off all at once, according to the conditions of the bond.  

Mr. Archer said the three loans have a combined value of $26.4 million, with a $16.6 million loan “maturing” or coming due on April 27, 2015, a $4.8 million loan amount due on June 30, 2015 and a $5 million loan also due on June 30, 2015. The $5 million loan payment will be made through reserve funds held by the development bank, the finance minister said.  

Government’s 2014/15 budget year runs from July 1, 2014 and June 30, 2015.  

The other two loans owed are worth a total of $8.3 million and will be due sometime during the 2015/16 budget year. A total of $34.7 million is owed by government on the five development bank loans  

“We … are working with the Cayman Islands Development Bank to develop a strategy to refinance its debt,” Mr. Archer said Monday. “However, it is important to note that the government will not pursue any course of action that will be contrary to its existing financing arrangements.”  

The Cayman Islands does not plan to borrow any new long-term debt in either its 2014/15 or 2015/16 budget years, Mr. Archer said. In addition, a short-term debt facility called “overdraft” borrowing will not be used in the upcoming budget, the finance minister said.  

It is assumed that the United Kingdom would not object to Cayman refinancing portions of its debt, although U.K. officials have never publicly stated their position on the matter.  

The Cayman Islands Development Bank loans pale in comparison to another “bullet loan” facility Cayman will have to either pay off or refinance within the decade. A US$312 bond issued by government in 2009 will mature in November 2019. Mr. Archer has alluded to government’s need to refinance that debt as well to “spread principal repayments over a more manageable time frame.”  

In addition, the government has established a “sinking fund,” as required under the terms of the Framework for Fiscal Responsibility agreed with the U.K. in 2011.  

The government plans to deposit $4.3 million into the fund during the upcoming budget year and hopes to have more than $18 million over its next four financial years. The idea is to use money from the sinking fund to retire debt, rather than taking money from the government’s cash surplus or borrowing more to pay off earlier borrowings.  

Other loans 

The central government estimates it’s total debts will have reduced to about $549 million by June 30.  

However, that’s not all the Cayman Islands public sector must eventually pay back, an additional $129 million in loans are “outstanding” heading into the 2014/15 budget.  

Those loans include $36.9 million owed by the Cayman Islands Development Bank, $30 million due from Cayman Airways Ltd., $22.4 owed by the Cayman Turtle Farm and $18.1 million owed by the National Housing Development Trust.  

Other loans outstanding among the statutory authorities and government companies include $12.9 million from the Water Authority-Cayman, $4.8 million from the Port Authority, $1.8 million from the Health Services Authority and $450,000 due from the Cayman Islands Airports Authority. 

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4 COMMENTS

  1. Problem solved. You ran an article a few days ago relative to the extra funds the gov’t had and really didn’t know what to do with it. There some insane suggestions such as giving people a reduction in their light bill for 20. I trust that genius is now incarcerated and is not allowed to make any further financial suggestions. Simply put, paying down debt is never a bad thing….unless you own a bank.

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  2. len king, for individual it is almost always better to pay out debt first. For country or company it is not that clear cut. Sometimes its better to invest money into economy. Say, if reduction of taxes on business stimulate growth – payout of debt might become even easier.
    It is, of course, subject to government knowing where to apply those funds to improve economy. If they don’t know, then yes, it is better to pay down debt.

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  3. Stanislav, I do tend to agree with your comment in general, with the caveat that 1) the leaders know what they are doing and 2) this applies more to countries that have full autonomy and are fully integrated with the international financial system. There’s no guarantee that Cayman will be able to issue more debt or refinance its current debt at favorable terms, or even that the UK will allow it to.
    But I do think there is merit to not paying down debt with every last cent of surplus. A country needs some flexibility to operate, stimulate the economy and take advantage of any capital opportunities that come along.

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  4. Stanislav,
    I could not agree more. The Caymanian People are shouldering the load and are paying the price for the mismanagements and/or thefts of government. The Cayman middle class is shrinking and there are no immediate signs of that trend reversing in the near future. By giving some relief to the people may renew some of their faith in government.

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