By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government yesterday revealed it has taken a $100m "provision" in anticipation of the Bank of the Bahamas bail-out vehicle recovering just 40 percent of the toxic loan sums transferred to it.

The Fiscal Strategy Report 2019, tabled in the House of Assembly yesterday, reaffirmed that the $167.7m "gross book value" of bad credit switched from the troubled BISX-listed bank to Bahamas Resolve "significantly" exceeds the collective worth of the mostly real estate collateral it is now attempting to sell on taxpayers' behalf.

It also confirmed that the government (meaning taxpayers) has had to cover the semi-annual interest payment due on the promissory notes injected into Bank of The Bahamas' balance sheet in exchange for these toxic loans, as Bahamas Resolve has been unable to generate sufficient revenues from selling the underlying security.

With the $167.7m in promissory note principal due to be paid to Bank of The Bahamas by end-August 2022, the Fiscal Strategy Report said the relatively slow recovery pace meant the Government had little choice but to take provisions given that it will likely have to cover "at least 60 percent" of this sum using taxpayer monies.

"In fiscal year 2022-2023, the Government has made a $100m provision for a possible outlay related to Bahamas Resolve," the report reveals. "Under a promissory note executed in August 2017, a second tranche of non-performing assets were transferred from the Bank of The Bahamas to Bahamas Resolve, the special purpose asset management company formed for this purpose.

"The gross book value, and corresponding value of the promissory note, was $167.7 million, bearing interest at a rate of 3.5 percent semi-annually and with the principal becoming due on August 31, 2022."

Confirming that the Public Treasury, and not Bahamas Resolve, has been making these interest payments to-date, the report continued: "Resolve envisages being in a position to make its semi-annual payments on the $167.7m note, which aggregates $5.878m annually and, to date, has been budgeted for and made by the Government.

"While Resolve is also making progress with the sale of properties, the degree of toxicity in the asset pool is likely to limit recovery of the gross book value of the loans, which is significantly higher than the appraised value of the underlying security.

"Based on early estimates and, barring no change in status of several large exposures, it is likely that the Government will be required to redeem at least 60 percent of the $167.7m note. It should also be noted that the Government is examining the possibility of acquiring suitable commercial properties out of Resolve's asset pool for administrative offices," it said.

From the perspective of governance, the Government is working with Resolve to establish greater transparency in its operations through the requirements for regular financial reporting and release of information on asset sales to the public. The first audited financial statements, covering activities through 2018, should be released prior to end-2019."

James Gomez, Bahamas Resolve's chairman, yesterday revealed to Tribune Business that the bail-out vehicle hoped to relieve Bahamians of their twice-yearly interest payment burden by making its first $2.9m outlay in February 2020.

He added that while it was seeking to "maximise" asset recoveries on behalf of taxpayers to minimise their exposure, the "current market environment" was making it extremely challenging to achieve sales prices that matched the delinquent loan amounts.

"It [Bahamas Resolve] purchased the portfolio at gross book value, but the underlying security is significantly lower than that," Mr Gomez explained. "We're trying to realise the security, and realising the security in current market conditions, you're probably not going to get close to what you expect on the value of security which is lower than the gross book value.

"That's where you create the gap. That's the challenge. Things were moving a bit slowly, but they're moving at a quicker pace now. You will see quite a bit of movement. We're trying to maximise recoveries given the current market environment. If things go in our direction, we get lucky, we might go beyond the Government's expectations in terms of what we realise."

Suggesting that Bahamas Resolve was moving closer to standing on its own feet, Mr Gomez added: "We have a semi-annual interest payment that is due in February. Resolve will fund it on its own. We're going to meet that on our own in February from sales.

"We're not going to need any government support; I've spoken to the deputy prime minister on that. We'll meet that payment. It's $2.9m or thereabouts. We're going to pick up our own tab with that semi-annual interest payment that comes due in February."

Mr Gomez also confirmed that Bahamas Resolve was on track to publish its financial statements, dating back four-and-a-half years to when it was created, before year-end 2019. "This will encapsulate audits from inception," he added. "It essentially brings us current.

"No financial statements were done under the former Board. What we're trying to do is bring everything current from inception and give a full accounting. It's not just one year; we're doing four-and-a-half years, which is a bit of a challenge but we're literally knocking on the door now. We're about 30 days away from finishing those financial statements. It's been a long road, and a challenging one, but we're almost there."