The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Nassau Development Company (NAD) no longer requires a government "commitment" or waiver from its lenders after returning to full compliance with conditions governing its outstanding $322.313m debt at end-September 2022.

Vernice Walkine, NAD's president and chief executive, yesterday confirmed to Tribune Business that the Lynden Pindling International Airport (LPIA) has remained in line with its financial covenants ever since and, as a result, no longer requires the Government's pledge of financial support to satisfy its bondholders.

"That is correct. Everything fell away once we came into compliance at the end of the September quarter," she told this newspaper. The waiver granted by NAD's financial investors, which was extended due to the airport's passenger numbers and revenues almost completely drying up at COVID's peak, is also no longer required.

That had temporarily freed NAD from having to maintain a debt service coverage ratio of at least 1.3 to one, and the airport operator as a "precautionary measure" had obtained the waiver's extension until December 31, 2022. Ultimately, that extension was not needed because NAD's debt service coverage ratio had rebounded to 1.36 to one - well within the limits stipulated by its financing conditions.

"It turned out that we didn't actually need to avail ourselves of that, but it was something the lenders thought was important for us to have," Ms Walkine added. NAD’s had previously anticipated the debt service coverage breach would persist through at least end-September 2021, and secured an agreement from its senior debt holders to waive this condition until end-June 2022 in the hope it would provide sufficient breathing room for both the tourism industry to rebound and to rebuild its finances.

Its estimate appears to have been almost bang-on, given that the LIPA operator had returned to compliance by end-September 2022. "On June 30, 2022, the debt service coverage ratio was 1.25 to one," NAD's 2022 annual financial statements revealed.

"This was not an 'event of default' under the senior financing agreements as the amendment and waiver agreement obtained by the company on November 25, 2020, remains effective through to June 30, 2022, unless there was an event of default under the senior financing agreements resulting in the termination of the debt service coverage ratio waiver by the senior noteholders.

"The amendment and waiver agreement also provided for additional interest of 0.75 percent that would accrue on the senior debt in the event that its assigned credit rating falls below 'BB-'. Such additional interest would be payable in eight equal quarterly instalments from September 30, 2025. As at the date of approval of these financial statements the senior debt was rated by Fitch as 'BB-'."

No payments were made to bondholders in the year to end-June 2022 because NAD was also non-compliant with the 1.4 to one debt service coverage ratio required to trigger this. "Subsequently, as a precautionary measure against possible non-compliance of the debt service coverage ratio up to December 31, 2022, management requested and obtained, on September 30, 2022, an extension to the amendment and waiver agreement," NAD's 2022 financial statements added.

"[This] provided for a waiver of the debt service coverage ratio covenant through to December 31, 2022, unless there is an event of default under the senior financing agreements resulting in the termination of the debt service coverage ratio waiver by the senior noteholders.

"The commitment letter to the senior noteholders by the Government of The Bahamas was also extended to December 31, 2022. All conditions of the previous waiver and commitment letter remained unchanged. On September 30, 2022, the debt service coverage ratio was 1.36 to one and the debt service reserve account was fully funded in compliance with the senior financing agreements."

NAD’s external auditors, PricewaterhouseCoopers (PwC) Bahamas, while again flagging up the “going concern” issues created by the covenant breach, did not qualify the accounts for the 12 months to end-June 2022.

Financial statements for previous years indicated that the Government’s commitment letter, promising to support the airport operator financially if necessary, was critical to securing the debt service coverage ratio given that both developments occurred on the same day. And this, in turn, was vital to ensure NAD was treated as a ‘going concern’ for accounting purposes.