UK minister warns of looming US$312M debt

While congratulating Cayman’s government on the accumulation of big cash reserves by December 2015, Britain’s overseas territories minister has warned Cayman of another massive financial commitment looming within what will be the next administration’s term in office.

The Cayman Islands owes US$312 million [CI$261 million] on what’s known as a “bullet loan” or “balloon payment” loan with the full amount coming due in November 2019.

“I look forward to hearing how you plan to manage the refinancing of [the] Cayman Islands government’s remaining debt instruments, including the 2019-dated bond,” said U.K. MP James Duddridge in correspondence with Cayman Islands Premier Alden McLaughlin last month.

The terms of a bullet loan require it to be paid all at once. Typically, the payments are held in abeyance until the due date, in this case Nov. 19, 2019.

The loan derives from a 2009 public bond offering by the former United Democratic Party administration. Then-Premier McKeeva Bush has often said he was forced to engage in borrowing at that time simply to pay recurring expenditures of the former People’s Progressive Movement government that had accumulated an operating deficit of CI$81 million the year prior (2008/09).

Cayman’s total central government debt, which once reached more than CI$600 million, was a major factor in the U.K. taking away direct control of budget proposals from local legislators during the UDP government’s term and implementing strict financial controls now enshrined in local law and known as the Framework for Fiscal Responsibility.

“I am sure you will agree that robust debt management strategy is an integral part of good financial planning,” Mr. Duddridge wrote to the premier.

U.K. Overseas Territories Minister James Duddridge
U.K. Overseas Territories Minister James Duddridge

According to government’s 2015/16 budget documents, the vast majority of the central government’s debts – more than CI$350 million – will come due within the next two to five years, the term of the next elected government.

Finance Minister Marco Archer’s Progressives-led coalition will face a general election in May 2017, or perhaps before then, depending on whether Premier McLaughlin seeks to call a snap election this year. Although he acknowledges dealing with the bullet bond debt from 2009 will be a problem for the next government, Mr. Archer said Tuesday that he would like to put the new administration on “sound footing” with regard to the debt, whether or not he is reelected and/or returned as minister.

Mr. Archer said the Progressives administration established, during its first year in office, what’s known as a “sinking fund” to help retire the 2009 bond debt. According to budget records for this year, more than CI$18 million has been placed in that fund.

The finance minister said he hoped a large portion of the 2009 bullet loan could be retired – if not all of it – on the due date. Whatever cannot be paid off would likely have to be refinanced as Mr. Duddridge suggested.

The government refinanced other bullet bonds owed between 2015 and 2016, mainly from loans given by the Cayman Islands Development Bank, giving the public sector more time to pay.

Mr. Archer also confirmed that government had no plans to borrow any more money during the upcoming 2016/17 fiscal year which is expected to run through December 2017, a period of 18 months, as the government switches to a multiyear budget process.