Cayman seeks one-time $261M debt payoff

Finance Minister Marco Archer delivers the budget address at the Legislative Assembly on Monday. – PHOTO: MATT LAMERS

Although the deadline for payment is still more than three years away, Cayman’s government is projecting that it will be able to pay off a US$312 million [CI$261 million] loan all at once at the time it becomes due in November 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). The so-called “bullet loan” or balloon payment loan requires the full amount to be paid off at the date of maturity, Nov. 19, 2019.

“It is projected that the 2019 bullet bond can be repaid fully with government’s bank account balances in November 2019, without the need for external borrowing to do so,” a statement from Finance Minister Marco Archer’s office issued Wednesday read. “If the government decides to repay the bond fully from its bank account balances, such a payment will not adversely impact other government planned operations.”

The amount due – $261 million – is close to half of all the debt held by Cayman’s central government.

The payment is due midway through the term of the next elected government and Minister Archer has acknowledged that he may or may not still be the finance minister, or even in politics at all, depending on what happens in the next election.

The government’s other option would be to refinance a portion of the loan through further borrowing, although that would require taking out more debt. Cayman’s government has not engaged in any long-term borrowing since it signed the Framework for Fiscal responsibility with the U.K. in late 2012.

U.K. Overseas Territories Minister James Duddridge has pushed Cayman to produce a proposal on how it plans to “manage the refinancing of the Cayman Islands government’s remaining debt” including the $261 million bullet loan.

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 earlier this year.

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.

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.

However, it is proposed in budget records for the upcoming year that about $12 million from the sinking fund be used to pay off other government debts.

The “sinking fund” is not linked solely with any one particular debt of the government and, it can be used in the process of repaying any loan,” the statement from Mr. Archer’s office read.