US-based debt advisory firm warns of future consequences over bond issue

NASSAU, BAHAMAS — A US-based debt advisory firm has warned there may be future consequences on pricing due to the government’s $600million foreign currency bond placement earlier this month.

Public Resources International contends the fixed-rate bond is priced as if the country has permanently lost its investment rating, as opposed to temporarily pending the resumption of tourism.

PRI had previously offered the government a $750million floating rate bond, priced at 3.87 percent interest.

Last month, Finance minister and Deputy Prime Minister K Peter Turnquest acknowledged the government had considered PRI’s offer but stressed the country was not a “fly by night entity” that could allow itself to be held at the mercy of “any of these kinds of institutions”.

Turnquest continued: “We have a very sophisticated debt management unit staffed with competent professionals who evaluate each and every one of these offers to ensure they are credible, there is integrity behind the offer and they have the financial standing to make the offer.

In a memo sent on Friday, co-founder Miner H Warner said the ministry’s staff had misinformed Turnquest on the validity of his company.

It read: “Our proposal gave The Bahamas the right to repay at par after three years. All international capital market economists believe that interests will be low for the foreseeable future. There is minimal to very low risk that rates will be higher from current levels. You can switch at par from a floating rate to fixed after three years.

“It may be concerning for future Bahamas bond issues that the pricing of this fixed bond is high, not priced like a credit which has lost its investment rating temporarily but will regain it with the resumption of tourism, but as a credit which has permanently lost it. There may be future consequences on pricing.

“Deputy Prime Minister, we look forward to future dialogue,” it added.

The memo was also addressed to former Central Bank Governor Wendy Craig and Finance Secretary Marlon Johnson.

Warner contended the capital markets were panicked in early 2020 due to the uncontrolled coronavirus pandemic, adding his company considered fixed-rate financing far too costly.

The memo continued: “The FR (floating rate) Bond would be priced off the six months rate at 350 basis points. That is a lower rate than the fixed rate on the bond which is priced off the 10 year Treasury. The cost of your fixed rate is about 500 basis points more costly per year versus the FR Bond or about $30million. Over three years that amounts to $90million that The Bahamas must pay in avoidable interest costs.”

Speaking to the company’s record, Warner said PRI has conducted several operations for the World Bank and IMF for sovereign countries that have been funded and monitored by them.

It noted its role as a financial advisor on a settlement for creditors of defaulted debt of the Government of Mozambique.

“Several years later came the absolutely scandalous “tuna fish boat fleet bond” for $2billion, of which at least $200million in kickbacks were paid to the lead bankers, Credit Suisse, and the corrupt Finance Minister,” the memo read.

“Credit Suisse bankers and the former Finance Minister of MZ are criminally charged in both the U.K. and the U.S. All this is public knowledge and well- covered in the international press, such as the Financial Times.”