By NEIL HARTNELL
Editor-in-chief of the Tribune
Nassau’s main freight port said it had ruled out the possibility of a tariff hike by agreeing to refinance its preferred stock debt of nearly $ 31 million, which will reduce interest charges by about $ 4. $ 5 million.
Dion Bethell, chairman and chief financial officer of Arawak Port Development Company (APD), told Tribune Business that preferred shareholders will be repaid their principal within 90 days after agreeing to replace their capital with bank debt bearing a rate of d. ‘interest of about 2.4 percentage points. lower.
“When we entered the market with these preferred stocks, they were at 5.5%, and we were able to negotiate a rate more favorable than the prime rate minus 1.15% with a cap not exceeding 4.75%,” explained the head of the container port of Nassau.
Since the Bahamian Prime Rate is currently 4.25%, this will reduce ODA long-term interest (debt servicing) costs from 5.5% to 3.1% once the capital is preferential share of $ 30.856 million in circulation at the end of June 2022 will be reimbursed to its investors.
“The difference on that $ 30 million is substantial in terms of interest savings for the company and, in fact, it is the common shareholders,” Mr. Bethell said. “We estimate that for the option we considered, we would save approximately $ 4.5 million over the life of the facility.
“With the times we live in, we need to find ways to cut costs rather than increase tariffs. This is one of the options that we believe was the best for the company and its shareholders at the present time.
“This gives APD the opportunity to obtain lower financing costs on its debt. If you own preferred shares, you would like to hold them longer at the higher rate of 5.5%, but we have always been careful in managing our expenses and have sought to keep our rates low. One way to do this is to refinance the preferred stock at lower rates. “
The interest savings resulting from the preferred stock replacement will be spread over 12 years, resulting in an annual reduction of ODA debt service costs of $ 375,000. When asked if ODA rates should have increased in the absence of the refinancing, Mr Bethell admitted that was a possibility, meaning that an increase in shipping costs that should have been passed on to Bahamian consumers was avoided.
“It’s not in the budget plan for the coming year; there is no price increase, ”he told Tribune Business. “Given the [container import] current volumes, an increase was something we should have considered, or perhaps we could have used other means to manage our costs, but the intention was never to increase our rates.
“We have a mechanism in place that guides us to make these increases, and given the volumes we might have had to do if we hadn’t been able to explore this option.” Mr. Bethell confirmed that the bank indebtedness, which will refinance the preferred shares and pay the investors, comes from either the Royal Bank of Canada (RBC) or the CIBC FirstCaribbean International Bank (Bahamas), although he has no specified which.
Financial industry sources, speaking on condition of anonymity, said Canadian-owned banks approached companies and offered loans to replace existing debt with preferred stock in a bid to reduce liquidity. surpluses that clog their balance sheets.
These surplus assets currently stand at over $ 2 billion across the industry, and in the absence of strong lending opportunities after COVID-19, some banks are increasingly eager to implement them. and be creative in finding borrowers and generating returns.
Tribune Business has been told that RoyalStar Assurance, the property and casualty underwriter, is also looking to refinance its own $ 10 million preferred stock debt with cheaper bank loans. Anton Saunders, Managing Director of RoyalStar[hasconfirmedthattheinsurer”examinesalloptions”forfinancialandcapitaliststructurebuthasbeenfiredtocommentfurther[‘smanagingdirectorconfirmedthattheinsureris“lookingatalloptions”foritsfinancialandcapitalstructurebutfurther[aconfirméquel’assureur”examinetouteslesoptions”poursastructurefinancièreetcapitalistiquemaisarefusédecommenterdavantage[’smanagingdirectorconfirmedthattheinsureris“lookingatalloptions”foritsfinancialandcapitalstructurebutdeclinedtocommentfurther
“We are looking at all of our debt financing and our preferred share debt,” he said. “We are in negotiations on all sides.
Mr Bethell, meanwhile, said Bahamian Prime would have to rise to 5.85% for the ‘cap’ of 4.75% on his bank interest to come into play – something he described as “highly unlikely. anytime soon “. He added of the refinancing: “It improves the cash flow.”
APD must give preferred shareholders 90 days notice for their investments to be repaid. These were sent out last week and the bank indebtedness will not be guaranteed just like the preferred shares.
