The Cayman Islands government has guaranteed the refinancing of nearly US$37 million in debt amassed by the Cayman Islands Development Bank.
The Legislative Assembly voted unanimously Wednesday in favor of the debt refinancing plan, in which the government agreed to back a 10-year loan facility at a variable interest rate of 1.425 percent by FirstCaribbean International Bank.
Finance Minister Marco Archer said principal repayments on the refinanced debt would not have to be made for the first three years of the loan. Mr. Archer also said the renegotiated deal would save Cayman more than CI$360,000 in annual interest costs.
“This reflects excellent terms for refinancing some of the outstanding debt,” said Financial Services Minister Wayne Panton, who has oversight responsibility for the development bank.
The refinancing deal consolidates 11 loans, all at varying interest rates, that cost taxpayers more than CI$800,000 a year in interest.
Mr. Archer said the previous loans, known as bullet or balloon payment loans, all came due on June 30, so the refinancing arrangement was necessary unless the government wished to make a full payment of more than CI$30 million all at once.
A competitive bidding process for the refinancing resulted in three bids submitted from local banks, he said.
Legally required approval of the government-guaranteed refinancing was not brought to the Legislative Assembly prior to June 30, the date the loans came due. However, Mr. Archer said FirstCaribbean allowed the drawdown of US$36.8 million to pay off the existing loans on that date based on assurances that lawmakers would approve the guarantee of the refinancing later. They did so on Wednesday.
Mr. Panton said earlier this year that he intended to get the development bank back into the business of offering start-up loans to local firms. However, he said it would be “a few years” before the government could consider using the bank as a tool to stimulate business growth.
“At this point, small business loans are not possible,” he said at a small business conference in April.
A consultant’s report delivered to the government last year recommended closing the loss-making development bank if the “political will” did not exist to carry it forward. According to Mr. Archer, the Progressives-led government has such a will.
“Mistakes were made in the past which led the Cayman Islands Development Bank to the brink of bankruptcy,” he said. “This government has taken a more measured approach. Where a business shows true potential, the [development bank] will be placed in a position to provide further credit facilities.”