INTERVIEW: Bermuda gets ahead of COVID-19 costs - LatinFinance

August 25, 2020 | Jo Bruni

Island government has enough funds to last for two years as the economy recovers from COVID-19, finance minister says

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Faced with rising costs from the COVID-19 pandemic, Bermuda had to rewrite a part of its 2020 financial playbook and come to the bond market on August 17 with $1.35 billion in new notes, more that it had planned at the start of the year.

"A financing of some sort was always on the cards for Bermuda," Finance Minister Curtis Dickinson told LatinFinance in a telephone interview, referring to a plan announced early his year to repurchase $500 million worth of old bonds and to pay back short-term debt from a failed real estate development in 2019.

"Then, COVID-19 happened," Dickinson added.

The government had to purchase medical supplies and equipment. It had to set up quarantine facilities. It also had to cover the costs of putting the local military regiment on full-time duty to enforce a curfew. And after cruise ships cancelled their visits and tourists stopped coming to the island, the government stepped in with an unemployment assistance program, financed with a $150 million loan from local banks, Dickinson said.

Now, after repurchasing old notes and refinancing local loans, the government has $450 million from last week's bond sale to put toward the budget for the next two years or so, he said.

"We do not have plans at the moment to access the market again this year," Dickinson said. "The strategy was to raise enough liquidity... to fund deficits for the next two and a bit years."

In the deal, Bermuda issued $675 million in 2.375% 2030 notes at 99.885 to yield 2.388%, or 170 basis points over US Treasury notes, and another $675 million in 3.375% 2050 notes at 99.719 to yield 3.39%, or 195 basis points over US Treasury notes.

Demand for the bonds was high, Dickinson said, with the order books eight times oversubscribed at their highest point.

"On the 10-year bonds, this was the lowest coupon that Bermuda has ever been able to achieve in its history of issuing debt, and the spread of 170 basis points over US Treasuries is the best that it's ever been able to achieve. On the 30-year bonds, the pricing was also very, very good. They priced at the same spread as the 2027 bonds currently trading," he said.

"It was clearly a landmark transaction that afforded us the opportunity to tell our story and to raise capital to fund the government as well as navigate our way through the economic fallout from COVID-19," he said.

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