Financial Secretary Says The Government Will Not Get Through 2025 Without Borrowing.  Explains Government’s Proposed $150 Million Loan Facility.

By Alric Lindsay

On the Cayman Islands Government’s “Bonfire” website, the Government published an invitation to prospective bidders to submit a proposal for the provision of a 15-year CI$150,000,000 (US$182,926,829.27) loan facility to the Government. However, in last week’s Finance Committee meeting, Kenneth Jefferson, Cayman’s Financial Secretary, said he wished to clarify a few things about the proposed facility, including that the Government had not yet entered into any new loans for the year to October 2024.

Details of the CI$150,000,000 loan

According to the Bonfire website, the details of the loan facility are as follows:

Scope:

Facility Amount: CI$150,000,000 or US$182,296,829.27

Pricing benchmark (interest base):

10-year US Treasury or Fed Rate: 

Fixed Margin/Spread:

The fixed margin should be the all-in, fully inclusive of credit spread, carrying cost, standby fee, stamps and any other related fees except for legal and arrangement fees, which should be  disclosed separately in the bid submission

Arrangement & Legal Fees: 

Term: 15 Years

Drawdown: In two tranches consisting of:

1st Tranche: CI$23,000,000 on signing of agreement, but by no later that 25 November 2024.

2nd Tranche: CI$127,000,000 to be withdrawn within three-months of executing the agreement or upon one-month’s written notice of drawdown.

Repayment of the Facility: 

The facility will be repaid in equal monthly installments over the life of the facility  commencing one month after the date of signing the loan agreement. Interest will be paid monthly on the reducing balance of the facility. The Government reserves the right to repay the debt, in part, or whole without being subject to early repayment interest penalties or make whole clauses.

Facility Security: Unsecured

Tax Risk: The Cayman Islands will not accept any tax risk relating to the proposed funding.

Variation of Interest Rate:

The Cayman Islands Government will not accept any increase in the interest rate charged on the  facility over its life arising from any change in, or introduction of, any tax or levy.

Cash Flows:

You are requested to submit amortization schedules of cash flows over the life of the facility showing principal and interest payable by the Cayman Islands Government.

Credit Approval:

Tenderers are required to obtain their credit committee’s approval in advance for the facility amount for which they are submitting an offer.  Evidence of this approval must be submitted with your tender along with a declaration stating that the information provided in the tender document  is true and correct, and the signatories are duly authorized.

Financial Secretary’s explanation

Explaining the origin of the loan facility and the status of any new borrowings, the Financial Secretary said the following at the Finance Committee meeting:

It’s coming, approaching a year ago now, when the 2024 and 2025 budget was presented to the House. That happened in December 2023. The budget was approved the same month, December 2023. In that budget, it contained a provision that the Government would borrow a total of $150 million over the two year period of 2024 and 2025.

And the profiling of that 150 million was $27 million in 2024 and 123 million in 2025, for a total of 150 [million]. And that ability of the Government to borrow is actually contained in the Appropriation Act for the two years, just as any other matter, of outputs, equity investments, executive assets, expenditure, all of those are specified in the Appropriation Act, as well as the ability to borrow, Madam Chair, to a date.

Notwithstanding the above provision in the budget, he said, “up until today… the borrowings of the Government have been nil.”

He added:

What the members of the public saw a short while ago was the Ministry of Finance putting in place a request for proposals to seek tenders from, principally, we expect local banks to bid on that $150 million loan facility. So we are attempting to put in place a facility to allow the Government to borrow up to 150 million for the two year period. We have borrowed zero thus far.

He continued:

Madam Chair, it is possible that the Government could go through the entire 2024 current year without borrowing. That is possible. I think it really will come down to what the level of capital expenditures actually turn out to be. So you’ve heard it before. The original budget was for capital, $172 million.

He explained further:

We are projecting $125 million for the year. So roughly $10 million for every single month of the year. The results for yesterday that I got yesterday, for the month of September, the capital spend in the month of September was $11 million.

So, the 125 million projection that we have, we feel fairly confident about saying all that to say, there is a possibility that although we have included $127 million as a borrowing in 2024, it is possible that we may be able to get through the entire 2024 year without borrowing anything at all. And then the $150 million facility would be available in its entirety for use in 2025. I don’t believe, Madam Chair, that the Government is going to be able to get through 2025 without borrowing. I don’t think that’s going to be the case because the original profiling was for that year to attract borrowing of $123 million. And I think that’s is going to be hard to avoid.

What we can possibly avoid this year with a profiling of borrowing $27 million. But I don’t believe that we’re going to get $123 million for next year, 2025, down to zero. That would be quite miraculous.

He concluded:

We would like a fixed rate of interest for that 15 year duration. And we would like to repay the principal and the interest monthly in order to go aggressively at repaying the loan. And Madam Chair, the RFP closes on the 18 October. So next week. Next week, Friday is the 18th. That’s when the tenders have to come in. And so you’re easily looking into November before any execution of the loan possible loan agreement is put in effect.

Note to readers:

The Cayman Islands Government publishes bids for various projects on its website, including for the proposed loan facility above. Details of bids can be found at the below link: https://cayman.bonfirehub.com/opportunities/155784

Persons interested in bidding on these Government projects are encouraged to create an account on the site and receive updates about project proposals as they arise.

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