The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The National Insurance Board (NIB) will receive a cash flow boost in return for smoothing the $139.1m refinancing of Nassau’s airport operator, a Cabinet minister said yesterday.

Dionisio D’Aguilar, pictured, minister of tourism and aviation, told Tribune Business that NIB as holder of around 50 percent of the Nassau Airport Development Company (NAD) debt being refinanced had effectively ensured the offering will be successful be agreeing to roll over into the new securities.

“NIB is already in for $60-$70m,” Mr D’Aguilar said, explaining that The Bahamas’ social security system will now enjoy the certainty of a 7.5 percent fixed-rate interest coupon as opposed to the unpredictable dividends received in the past.

“They’re just agreeing to the 7.5 percent under this new security,” he added, “whereas in the past scenario they were only getting two percent a year. If NAD was capable they’d pay the remaining 11 percent, but in many cases NAD did not pay it. They rolled it over. This will improve the cash flow of NIB as they will be getting 7.5 percent every quarter.”

The NAD offering, which formally launches today and closes on December 21, will refinance the Lynden Pindling International Airport (LPIA) operator’s second-tier participating debt tranche that carries a two percent fixed rate and 11 percent floating rate. The latter portion was frequently being deferred and “rolled over”, meaning it was accruing as a bill that had to be paid at some point in the future.

Mr D’Aguilar yesterday reiterated his belief that the NAD refinancing is a “win-win all around”, for besides aiding NIB’s cash flow it is also projected to help NAD turn a net profit for the first time in its decade-long history.

“It should lead NAD to profitability from net income,” he told Tribune Business. “It’s always had positive earnings before interest, taxation, depreciation and amortisation (EBITDA), but never turned a net profit.”

The LPIA operator is projecting that it will turn a comprehensive profit of $2.56m for its current financial year to end-June 2019, driven by further increases in passenger facility and other forms of revenue. Its “bottom line” has previously been weighed down by interest costs associated with the $522m debt taken on to redevelop the airport into a world-class facility.

“It’s obviously going to reduce the interest costs of NAD quite considerably from 13 percent all in US dollars down to 7.5 percent, most of it in Bahamian dollars,” Mr D’Aguilar said. “It’s going to be a considerable savings, not only on interest rates but the reduction of [currency] conversion costs which adds another 2 percent.

“It [this debt] was taken out during 2009 when money was hard to come by. It’s going to give Bahamian institutional investors, like pension funds, something else to invest in that will yield a decent return. It’s a win-win all around. It’ll help to improve the financial condition of NAD and enable it to continue on an upward trend of improved ratings by Fitch.

“Bahamian investors are getting zero in bank deposits, which is not an option. This gives Bahamian investors, small and large, an opportunity to invest and stops money going out of the country to pay foreign institutional investors.”

Mr D’Aguilar said that while the NAD offering was limited to a maximum of 50m investors to ensure it complies with Securities Commission rules on private placements, the offering’s agents - RoyalFidelity Merchant Bank & Trust and CIBC - had devised ways to allow small retail investors to participate.

He explained that RoyalFidelity and other broker/dealers had been able to lower the minimum $50,000 investment to $10,000 using brokerage accounts, and added: “The small investor is able to participate without any fees by opening a mutual fund with a minimum of $500.

“While this will not be a direct investment in NAD per se, it will be a diversified holding including NAD. RoyalFidelity has also agreed to purchase $5m through its brokerage desk and offer to open zero fee accounts for all interested parties to invest a minimum $2,000 and up to $5,000 for an upfront fee. This would be done as a secondary offering, thereby not impacting the private placement status or timing of this offering.”

Mr D’Aguilar said RoyalFidelity and CIBC believed they had “got most of it covered at this stage” in terms of raising the full $139.1m, adding that the offering’s structure fulfilled a key government goal by giving more Bahamians an opportunity “to participate in larger infrastructure projects” such as “the most significant port of entry” in the country.

The offering term sheet, distributed to investors by CIBC and RoyalFidelity in their capacity as joint placement managers, confirms that NAD is seeking to refinance “high cost” debt with securities that will carry a fixed 7.5 percent interest coupon payable quarterly. They will have a 17-year term, meaning they will mature - and principal be returned - by 2035.

NAD’s financial statements for the year to end-June 2018, released to investors as part of the offering materials, reveal that its net comprehensive loss fell by almost $10m year-over-year - dropping from $14.153m to $4.371m as it slashed losses by some 70m percent.

The improved financial performance was driven by increased passenger traffic stemming from Baha Mar’s full opening, plus fee increases, both of which contributed to significant hikes in passenger processing and facilities fees.

Passenger facility charge revenue grew by 15.5 percent or over $7m, rising from $45.464m to $52.508m, while processing fees were up by 51.4 percent from $7.525m to $11.396m. As a result, total operating revenue jumped from $77.028m to $89.396m, a 16 percent rise that put NAD closer than ever before to covering both operating expenses and $68.473m in financing costs.