UK must sign off on refinance

The Cayman Islands government will need to obtain the consent of the U.K. Foreign and Commonwealth Office before any of its ongoing debt obligations are refinanced in the upcoming budget year.

“Whilst [refinancing debt] is not considered new borrowings, such a strategy would be pursued with the knowledge and consent of the Foreign and Commonwealth Office in the context of [government’s] overall fiscal framework,” a statement attributed to the government Ministry of Finance, but sent by a representative of the governor’s office, indicated.

The Cayman Compass earlier reported that some of the “bullet loan” debts – meaning debts payable all at once in their entirety – will come due in the government’s upcoming 2014/15 fiscal year.

Finance Minister Marco Archer said last week that five loans taken out by the Cayman Islands Development Bank must be paid between 2015 and 2016, with three of them due in the next year. Those three loans have a combined value of $26.4 million, with a $16.6 million loan 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.

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.

“The government’s first preference is to retire some, if not all of the bonds held by [the development bank] at their current maturity date, if cash reserve and [the] fiscal compliance framework allows for this to happen,” the finance ministry statement read. “However, in the event the government and the [development bank] are not able to fully extinguish all the bonds maturing this year … then government will seek to extend the maturity date on those bonds ….”

The government’s debt strategy does not consider such an arrangement to be “new borrowing,” the statement provided to the Compass indicated.

Representatives of the U.K. foreign office and the governor’s office did not respond directly to questions about whether they would approve such an arrangement.

The Cayman Islands are currently forbidden by the U.K. from any further long-term borrowing until the local government’s budget comes within principles set out for responsible financial management under the Public Management and Finance Law.

Mr. Archer has said the goal for that to occur – at the end of government’s 2015/16 financial year – would be met by the current government.

However, even if those goals are met, representatives of the U.K. foreign office have noted that legal requirements under the Framework for Fiscal Responsibility drafted in 2011 would stay in Cayman’s local legislation. Some of those requirements set strict guidelines for public project procurement and limit Cayman’s ability to embark on public-private sector partnerships to facilitate public project construction.