Government has closed on a five-year revolving credit facility of $200 million with a syndicate of banks, Finance Minister Paula Cox (pictured) said yesterday in the House of Assembly.

The move comes after a similar five-year credit facility for $150 million was due to run out on Monday.The increase in the facility, which can be drawn down as needed, follows Government's revised Capital Expenditure Plan to fund significant construction projects including the St. George's Residential Care Facility for seniors, the Hamilton Police Station, Magistrates' Court complex, reconstruction of bridges and the continued construction of the new second senior secondary school.

Bank of America was the lead arranger on the facility which was refinanced on June 17.

Ms Cox said Government had launched and syndicated the transaction in Europe because of favourable market conditions for borrowers and pricings in the syndicated capital markets, which she said were at “all time lows”.

“The transaction was over-subscribed and the Government was able to obtain extremely competitive pricing on the new syndicated facility,” she said.

Arranger banks taking part in the facility included domestic institutions the Bank of Bermuda Limited HSBC and Butterfield Bank, along with Bayerische Landesbank, Commerzbank Europe (Ireland), Dexia Credit Local, New York Branch and Lloyds TSB Bank plc.

Co-arrangers were Banque et Caisse D'Epargne de l'Etat, Luxembourg and Landesbank Baden-Wuerttemberg, London Branch.

Government said the amount drawn down from the facility would be subject to a floating interest rate. In specific it can elect to follow either a three month or six month LIBOR rate with a 15 basis point margin.

Ms Cox said the facility had been given attractive terms and conditions, and a record low margin largely because of Bermuda's ‘AA' credit rating.

Facility fees and costs were not disclosed, but it is known that LIBOR rates currently stand at 3.45 percent (3-month) or 3.66 percent (6-month). LIBOR, which stands for London Interbank Offered Rate Index, is an average of the interest rates that major international banks charge each other to borrow US dollars in the London money market, and is commonly used to set rates for these kinds of transactions. The rates move and adjust quite rapidly to changes in interest rates.

Although Government's financing options under the current rates are favourable, interest rates have been trending upwards. For example, the three-month LIBOR rate a year ago stood at 1.56 percent, a month ago at 3.3 percent and as of June 22 had risen to 3.45 percent.

Government's increased ability to borrow through the higher credit facility follows its statutory debt ceiling being readjusted in April to $375 million from a previous ceiling of $250 million.

Opposition leader Grant Gibbons warned that the costs of borrowing money could add up in the current rising interest rate environment.

“No one should be under the misapprehension that this borrowing does not cost money. There is very much a cost and this does give us cause for concern,” he said.

Dr. Gibbons said in 2000/2001 the debt service cost carried a price tag of between $12 million and $13 million. In context he said that was effectively double what was earmarked for the total budget of the Ministry of Youth, Sport and Recreation in the same period.

The new debt ceiling level continues to fall within Government's long held policy to maintain the statutory debt ceiling at a level within ten percent of Bermuda's Gross Domestic Product (GDP). The 2004 GDP level stood at $4 billion.

At the time of the legislated increase Government said the new $375 million debt ceiling allowed it more flexibility when it came to capital financing arrangements including public-private partnerships and private financing initiatives.

Estimated borrowing requirements for the 2005/2006 fiscal year were stated in this year's budget as $210.5 million compared to $125.5 million last year. The total loan facilities and guarantees total is estimated to reach $269 million, including lending of $49.5 million to the Bermuda Housing Corp. (BHC), $4 million for the National Education Guarantee Scheme and a $5 million guarantee for the Bermuda Land Development Co.

The estimate of what Government will put into the sinking fund this year, which is used to repay debt, stands at $52.7 million leaving the outstanding debt and guarantee level at $216 million for the year.