* Aims to clear seven-year audit backlog in 2021
* Lender 'developing plan' for $110m bond debts
* Has more management that are 'fit for purpose'
By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
A taxpayer-funded bail-out is "not an option" for repaying the Bahamas Mortgage Corporation's $110m bond debt that will start coming due within three years, its chairman said yesterday.
Patrick Ward told Tribune Business the state-owned lender planned to "meet a portion" of the principal due to Bahamian institutional investors from its own resources while also "developing a plan" to deal with the remaining debt.
While declining to provide specifics on this "plan", Mr Ward said the "heavy lifting" performed by himself and other Board directors over the past three-and-a-half years had left the Bahamas Mortgage Corporation better-placed to be self-sustaining and not require taxpayer support.
In particular, he disclosed that the seven-year backlog of audited financial statements dating back to 2014 should be cleared by year-end 2021, with the Corporation "not in a state to be audited" when the present Board took office following the May 2012 general election.
Acknowledging that the Bahamas Mortgage Corporation was in breach of its own law by failing to produce audited financial statements since 2013, a trait not uncommon with many state-owned enterprises (SOEs), Mr Ward revealed: "We were very concerned when we discovered that was the case. We have been working on building our accounts department to facilitate an audit.
"We now believe we have arrived arrived at a point where we can have an audit of prior years. The Board is now fully engaged on having audited financial statements produced, and it is our expectation that we will have a full set of audits completed for the prior years in the course of 2021, so we will have fulfilled all our obligations for the years up to 2021.
"It's a mandated requirement under the Act for audited financial statements to be produced, but for whatever reason they have not been produced since 2013. I think we now feel a lot better about the fact we can now get an audit done," Mr Ward continued.
"I can tell you that the Mortgage Corporation was not in a state to be audited prior to all the heavy lifting that had to be done up to this point. I feel a lot better where we are now. We have been through a lot of heavy lifting, but are in much better shape for sure."
Few, if any, SOEs and government corporations produce their audited financial statements in a timely manner or in accordance with the legal requirements imposed upon them. This results in a lack of transparency and accountability that deprives the Bahamian people of the ability to know what elected officials are doing with entities that provide services and/or impose charges and costs upon them.
The Bahamas Mortgage Corporation's last audited financial statements, which were for 2013, revealed the extent of a potentially looming debt crisis when they were tabled in the House of Assembly in 2018.
They showed a collective $110m in bond principal must be repaid to lenders/investors over a four-year period that starts in 2023, a date that is now just three years away.
Most of that $110m matures during the first three of those years, yet the Corporation's so-called "bond sinking fund" - which is supposed to amass monies to enable it to repay this debt as it comes due - contained only $64m at year-end 2013.
This left a $46m deficit compared to what is owed between 2023-2026 alone, and the Mortgage Corporation's traditional high delinquency rate - with arrears or non-performing credit usually in the high 30 or 40 percent range - means it is impossible to generate the cash flow and profits necessary to boost the "sinking fund" to levels where it will be able to repay the $110m coming due.
This situation will likely be worsened by COVID-19, but Mr Ward was optimistic yesterday that the Mortgage Corporation will develop a strategy to address this problem without requiring additional taxpayer support even though time appears to be rapidly running out.
"Let's just say we are aware of the timelines we are facing," he told Tribune Business. "I know we have a schedule of repayments coming due in the next five years, and we are confident we can meet a portion of it through our existing resources, and develop a plan to deal with the other components of that, which I cannot say much about.
"There are certain portions [of the bond debt] we want to redeem or liquidate, and others require a different course of action. I cannot be specific at this stage because there are multiple parties involved. We have a plan, and will build up the plan to meet the commitments coming up in the next five to ten years."
However, Mr Ward appeared to rule out any need for increased taxpayer-funded subsidies or bail-outs. "In terms of any specific payment by the Government, at this moment I don't think that's one of the things we're focused on as an option," he told Tribune Business. "Let's put it this way. We're not focused on that as an option."
Mr Ward said the Cabinet minister responsible for the Bahamas Mortgage Corporation will have to disclose the bond repayment strategy once it is finalised and agreed by the debt holders, but his comments allude to a debt restructuring or rollover where the principal maturity date for at least some of the issues are extended.
At year-end 2013, close to two-thirds (61 percent) of the Mortgage Corporation's bond debt was held by the National Insurance Board (NIB). The national social security system, upon which many Bahamians still rely for a pension and other retirement/health benefits, is thus exposed should the trouble-stricken lender default on its debt.
The balance is held by banks, insurance companies, pension funds and other institutional investors. Among them, it is thought, are the likes of Family Guardian and Commonwealth Bank, both BISX-listed companies.
Mr Ward, though, said the Bahamas Mortgage Corporation has consistently been making payments into the sinking fund to cover the bond debt in compliance with the covenants attached to the issues. "I have to say the Bahamas Mortgage Corporation is one of the SOE's consistently not required to be funded by government directly or indirectly, through payment or emolument," he added.
"We've been able to maintain that by getting sufficient cash flow to fund our operational requirements in full. We've had sufficient cash flow to maintain that position through the COVID crisis. There are still people who want to pay their mortgages, are able to pay and have continued to pay through COVID-19."
Mr Ward described COVID-19 as "a bump in the road" for the Bahamas Mortgage Corporation, rather than something that would produce financial woes long-term, provided that "the overall economic environment in The Bahamas doesn't deteriorate to a great extent".
He added: "The Corporation has embarked on a number of initiatives to improve its operating efficiency, to improve its financial reporting and ability to meet financial reporting requirements, and to on-board at the management level more people fit for purpose.
"We have been able to do that over the course of the last three-and-a-half years. As a consequence we have a better handle on the operational part."
Mr Ward said the Bahamas Mortgage Corporation had yet to see "any meaningful deterioration" in loan loss provisioning as a result of borrowers' inability to repay their mortgages due to COVID-19, although then true picture will not be known until all deferrals end.
Comments
tribanon 4 years, 2 months ago
Ward has no solution whatsoever to the avalanche of soon-to-mature bonds that will altogether wipe out BMC, lock stock and barrel.
Dawes 4 years, 2 months ago
Is that not an option as these mortgages are from ordinary Bahamians, whereas when the loans where from the high and mighty at BOB this option was on the table straight away and used as quickly as possible?
realitycheck242 4 years, 2 months ago
You could right this ship all you want and Brave and the PLP will mess it back up if they win in 2022. Next time it may sink like BOB
tribanon 4 years, 2 months ago
Forget the sinking of BOB; Minnis is working hard at sinking the entire Bahamas long before climate change gets a chance to do so.
happyfly 4 years, 2 months ago
I personally know people who owe the mortgage corp huge amounts of money for failed construction projects and woefully upside down property values - yet they are still going around town buying more real estate. I guess when they have finished the audits they will get around to foreclosing on some of these Politically Connected Folks
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