The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Mortgage Corporation (BMC) needs a capital injection of more than $117.129 million to enable it to meet all bond principal and interest payments when they become due.

Documents seen by Tribune Business show the full extent of the looming financial ‘crunch’ at the Corporation, which is being driven by past excessive borrowing and insufficient income.

This is illustrated by the Mortgage Corporation’s cash flow statements for the year to end-June 2012, also seen by Tribune Business, show that it suffered a net outflow of some $7.32 million over those 12 months.

It also raises fresh questions over the National Insurance Board’s (NIB) move to kickstart the Government;’s housing programme via what will ultimately amount to a $60 million loan package to the Mortgage Corporation.

Some $10 million of this has already been released in what will be a phased approach, but the Mortgage Corporation’s weak financial position suggests its woes should be addressed first before new houses are built, and more debt obligations taken on.

A January 12, 2012, letter to Loraine Armbrister, the-then Ministry of Housing’s permanent secretary, from Mortgage Corporation financial controller, Brian Albury, outlines the extent of the financial support the latter would require to meet all its obligations as they come due.

“We refer to the request from the Ministry of Finance for information on the investment requirement of the Bond Sinking Fund, and provide two scenarios,” Mr Albury wrote just 16 months ago.

The first option, which involved funds being injected into the Mortgage Corporation to enable it to meet debt principal redemptions, with interest being paid from operational cash flows, said the infusion of $28.197 million would be required.

This was based on the Bond Sinking Fund, as at that date, containing $71.678 million and bond principal outstanding of $99.875 million.

The second scenario, Mr Albury outlined, identified $117.129 million as “the present value of funds required to be invested today to meet yearly principal and interest payments for the outstanding bonds”.

This was the difference between the $71.678 million in the Bond Sinking Fund and the $188.808 million in total dent principal and interest payments outstanding.

Tribune Business understands the letter resulted from a ‘number crunching’ exercise to determine the Government’s potential exposure.

Whether the Mortgage Corporation can generate enough cash flow from operations to meet all its obligations is doubtful, given its performance during the 12 months to end-June 2012.

Total inflows, generated from $21.848 million in borrower repayments and $12.75 million in bond investment drawdowns, totalled $45.1 million for the period.

Yet this was boosted by the $10.5 million bond issue in October 2011, around $5 million of which was used to boost the Bond Sinking Fund.

And the $45.1 million in inflows was outpaced by the $52.419 million in total outflows, which consisted of $9.689 million to “support the Ministry of Housing”; $35.317 million in bond principal and interest payments, and Bond Sinking Fund contributions; and $7.433 million in operating expenses.

This resulted in a $7.32 million net outflow for the 12 months, with the Mortgage Corporation’s total bank balance having dropped from a positive $1.475 million at the beginning of July 2011 to a negative $5.845 million come June 2012.

When negative bank balances were seen, the Mortgage Corporation has to use overdraft facilities at the Bank of the Bahamas International.

Between now and 2036, the Mortgage Corporation is faced with having to repay some $268.261 million in total bond principal and interest.

The real challenge for the Mortgage Corporation, and by extension the Government and Bahamian taxpayer, will come in the four years starting 2023, when $106.7 million in bond principal becomes due.

In an interview prior to Tribune Business obtaining these documents, former Mortgage Corporation chairman, Dr Duane Sands, said the revived housing programme would impose further strain on an entity that was still trying to ‘catch itself’.

He told this newspaper: “If you look at the Mortgage Corporation, the Mortgage Corporation was catching its ass, to try and continue on the path to financial health.

“We now, with some acrobatics and abracadabra, put the Mortgage Corporation at further risk with this $60 million.”

In response, Dr Sands’ successor, Alex Storr, alleged that his comments were reckless and disingenuous.

He added: “The Government had to explore all avenues with which to fund its housing programme for the Bahamian people.

“Thus an agreement has been entered into between the Ministry of the Environment and Housing, the Ministry of Finance, the Bahamas Mortgage Corporation and the National Insurance Board.”

He defended the investment of the public’s money, calling it “sound”.

“The agreement will also give the Bahamas Mortgage Corporation a capital injection at a lower interest rate than with the private sector, and will enable the Corporation to increase its portfolio,” he added.