Multi-million debt payout from top insurers

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Two major insurers yesterday revealed multi-million dollar debt payout plans, with both pointing to low interest rates and strong balance sheets to justify the move.

Patrick Ward, Bahamas First's president and chief executive, told Tribune Business that the property and casualty underwriter planned to return the remaining $3.75m Series 1 bond principal to investors by end-September this year.

His company is not the only insurer mulling such action, as Glen Ritchie, Family Guardian's president, disclosed to this newspaper that the pay-out of its remaining $5m preference shares was "definitely on the radar" for year-end or early 2019.

The BISX-listed life and health insurer has already redeemed the first $5m, or 50 percent, with Mr Ritchie suggesting the low interest rate environment meant it was prudent for companies who "have the wherewithal" to take out higher-cost debt.

Both men said the planned capital payouts would reduce leverage and debt servicing costs that would, instead, drop to the 'bottom line' for the benefit of ordinary shareholders.

"We have already redeemed the first 50 per cent of the Series 1 bonds," Mr Ward told this newspaper, "and are in the process of sending out notices to redeem the second portion of that first tranche."

Bahamas First raised $15 million via two equal bond tranches that were placed in September/October 2010, with the issue divided into two series - Series 1 and Series II. With the redemption of the final $3.75 million in Series 1, the underwriter will be left with just one series - and $7.5 million in bond debt - on its balance sheet.

Mr Ward said investors had to be given 90 days' notice of the redemption under the initial offering's terms, with the pay-out planned to occur in late September 2018.

"We've got the excess liquidity to do it," he told Tribune Business of the capital return. "It reduces the interest payments we have to make under those bonds, so the bottom line of the company benefits from their redemption. It also reduces the leverage the company has as bonds are ultimately loans."

Mr Ward said that while Bahamas First has "no fixed plans at the moment" to redeem its $7.5 million Series II bond principal, the company's strong balance sheet had enabled it to complete the current pay-out.

"This is why we're able to do it," he added. "If you look at the balance sheet we have a very strong solvency position. By liquidating the bonds there is no adverse impact to the balance sheet strength or solvency position as it relates to the required capital Bahamas First has to hold in the Bahamas."

Mr Ritchie gave a similar justification for Family Guardian's planned moves, which involve paying out the remaining 50 per cent of the $10 million preference shares it placed back in 2002 early next year.

Such a move would follow swiftly behind redemption of the first $5 million that was completed at end-June, and Mr Ritchie told Tribune Business: "It's definitely on the radar. If not by the end of this year, some time in early 2019, especially how the rate environment is looking."

He added that there was "nothing much out there" in terms of debt issues paying the same interest as Family Guardian, priced at 1.75 percent above Bahamian Prime, which matches the rate offered by Bahamas First on its bonds.

"It's cheaper for companies that have the wherewithal to pay off this high debt. You hit the nail on the head. It was quite a high rate," Mr Ritchie said. "If you look at our capital ratios they are very strong. We looked at our ratios for local solvency and the MCCSR standard, and realised that we could use that to redeem 50 per cent.

"Our first quarter results are pretty strong, so we anticipate having a pretty good year this year."

Mr Ritchie said it was too early to tell how the VAT rate hike to 12 percent will impact health insurance policy renewals, as Family Guardian's life, annuities and investments-related business is treated as 'exempt' from the tax.

"Time will tell how that pans out," he told Tribune Business. "Our main concern right now is persons paying [health insurance premiums] on salary deductions to get those payments modified. We're expecting 4.5 per cent more.

"We'll see persons react, especially on the individual medical side. Clearly, we would have wanted more time than the 30 days [notice]. It is what it is. We have to deal with it. It will be interesting to see how the consumer transitions. Give it until September/October.