Government has selected Butterfield Bank Ltd. to finance its CI$153 million loan.
The loan was secured as government moves to pay off its US$261 million bullet bond, which is due on Friday.
Finance Minister Roy McTaggart, speaking in Finance Committee Wednesday, said the loan will be used to replenish government’s cash reserves after it pays off the bullet bond.
He said interest will be accrued up to 24 Nov. and that will also be paid.
“Whilst the government is able to repay the bond from its own cash reserves, it is financially prudent to enhance our cash reserves subsequent to the 24 Nov., so we do not put government’s compliance with the requirements for the Framework for Fiscal Responsibility in jeopardy,” McTaggart said.
The FFR was set up by the UK government as a means to monitor the Cayman Islands government’s finances.
He said the repayment of the bullet bond is significant.
“It results in a substantial reduction in the public debt in the Cayman Islands,” the minister told fellow legislators.
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).
McTaggart, in announcing the winning bid Wednesday, said four financial institutions tendered to finance the loan.
The submissions, he said, were assessed by the entity procurement committee and the public procurement committee. The Butterfield bid was selected after the evaluation.
He said the key features of the successful bid included a fixed rate of interest of 3.25% annually for the loan’s entire 15-year duration.
It gives government the ability to make pre-payments on the loan without a penalty and included a 15-year amortising period.
Amortising means government’s payment will cover both the principal and interest.
These features were all requirements for the bids to finance the loan.
McTaggart said he welcomed the fixed rate government had secured.
“Bearing in mind that that the current prime rate is 4.75% in Cayman Islands the offer of financing at 3.25% fixed for 15 years underscores the financial confidence that is held in government and the very competitive nature of the tendering process,” he said.
He added government is confident that the Butterfield loan financing offer is the best option of the submissions received.