Government is turning to local banks with the hope of securing a $153 million loan to help pay off its $261 million bullet bond which is due to be repaid in full in November this year.
A request for proposals was issued on Friday, 13 Sept., for the refinancing of the bond and a “review and detailed analysis of viable financing options available in current financial markets”.
The deadline for proposals is 14 Oct. A 15‑year repayment term is being sought.
Finance Minister Roy McTaggart, speaking with the Cayman Compass on Monday about the RFP, said government is “hopeful that a number of the local clearing banks will submit proposals for the borrowing, that’s the aim”.
With a bullet bond, payments are typically held in abeyance until the due date and the full amount is required to be paid all at once when it matures.
The bullet bond or bullet loan was issued in 2009 by the former United Democratic Party administration, led by then-Premier McKeeva Bush.
Bush has often said he was forced to engage in borrowing at that time to pay recurring expenditures from the former People’s Progressive Movement government that had accumulated an operating deficit of $81 million the year prior (2008/09).
The bond is due in full on 19 Nov. and McTaggart said that the government’s plan is to secure the borrowing of $153 million and use $108 million from its own resources to pay off the bond when it matures.
The minister pointed out that the loan amount was approved by the Legislative Assembly in 2017.
“So we are only seeking to refinance that portion that has been approved already. We chose to go out to the local banking market because several, in fact, all of the clearing banks in Cayman had indicated a desire and a willingness to finance that amount of money for the government,” McTaggart said.
Government, he explained, will be seeking an amortising loan. This means it wants to be able to make monthly payments of principal and interest “rather than having a situation that we had with the bullet bond”.
He added, “In the bond market, it is more difficult to find people … willing to give you that type of amortising feature. They always want to hold it for a longer term, a fixed term with a bullet maturity. The banks are better prepared and willing and able to write these type of loans, and that’s what we [are] trying to achieve.”
The minister said government is aiming to work into the loan agreement the ability to repay the loan earlier “if we have the resources and can do so without there being or attracting any penalties for early repayment of the loan”.
McTaggart also stated that the loan will not present any issues with the Framework for Fiscal Responsibility. The FFR was set up by the UK government as a means to monitor the Cayman Islands government’s finances.
“It will certainly allow us to maintain compliance with the Framework for Fiscal Responsibility in all respects,” he said.
McTaggart said that, as a matter of courtesy, the Foreign and Commonwealth Office will be kept informed “on the developments and what finally emerges from this RFP”.
The minister added that the last government borrowing was in April 2011 in the amount of $154.1 million, and it was financed by one bank on island.