PJIA bonds sold out at US $132 million

PHILIPSBURG - -According to Princess Juliana International Airport operating company (PJIAE) Director Regina LaBega, the airport's financial standing, discipline and other factors made the US $132 million airport bond issue "go like hot bread."

LaBega highlighted the fact that "SXM (the airport code) is one of the few airports in the world that is financed on its own. The government gave us a concession and we are very grateful for that, but most airports – for example, Miami, Atlanta, Chicago, and several others – are supported by US federal and state funds. We are one of the few that depend mainly on our own revenues to finance development projects."
"We had a diversity of investors," LaBega said. "If we had had more bonds, we would have been able to sell even more. This is because Princess Juliana International Airport has been in the market before, so we have a track record of paying our bills on time and meeting our obligations promptly. This shows discipline, which investors look for. My predecessor Eugene Holiday laid a very sound foundation."
According to LaBega, the importance of the bond issue, in contrast to a loan from a St. Maarten bank, is that "you need to go to a wider source of capital – the capital market – which has deeper pockets than the banks, so to speak, to seek funds for major projects like we plan to undertake at the airport.
"The capital markets have more money and cater mainly to institutional investors, such as pension funds, insurance companies and banks, among other businesses," she said. The difference between a bond issue and a loan resides in the fact that a bond is a security that can be bought and sold, and usually has a fluctuating value.
Windward Islands Bank Ltd. Managing Director Jan Beaujon said bonds were issued in large denominations in the primary market, which functions really as wholesale. "You can only subscribe to them at the moment of issue," he explained. "Banks can buy packages of 100,000 or 200,000, and subsequently put them on the secondary market, where anyone can buy them as retail, depending on how the bond is structured."
LaBega expanded on this. She said the bonds in the case of the airport had been sold to qualified investors. This means that such investors are very sophisticated and have rules to ensure that individuals, for example, do not buy bonds from corporate entities whose credit rating they cannot properly analyse.
"That's why we went through a very elaborate and strenuous process with Moody's, the rating agency, as well as another round of scrutiny by the investors – the underwriters, in our case Nomura – because people want to protect their money," LaBega said.
"Our bond issue was structured and marketed solely to institutional investors. This has to do with our credit quality," said LaBega. The higher a corporate entity's perceived credit quality, the easier it is for it to issue bonds at low rates and issue higher amounts of them.
According to Beaujon, the underwriters or arrangers of the bond prepare the documents and advertise these to entities "they think will be interested in it." "The rating gives us a degree of confidence that the risk you're taking is worth it," he added.
The SXM Airport bond has a maturity of 15 years, meaning it will be due in 2027. This is typical for this kind of bond and the credit rating of the airport, LaBega said, and is the maximum maturity period generally for projects in the Caribbean, because the region is not considered a mature market.
The bonds are at a fixed interest rate of 5.5 per cent, down from the 8.25 per cent of the previous loan. Regardless of the market conditions, this interest rate will remain the same for the next 15 years, when the bonds will mature. The lower interest rate means substantial savings for the airport.
"It's as if you had a mortgage loan at 8.25 per cent and you were able to refinance it and bring it down to a fixed rate of 5.5 per cent. You can imagine how much you would be saving in this way," LaBega explained.
There was competition among the investors. Windward Islands Bank Ltd. was one of the investors that wished they could have bought more SXM bonds.
Beaujon said his bank had exchanged the old notes it had from the previous loan of the airport for the new bonds. It could not obtain more. "We were a bit late," he admitted. "There's only a certain number (of bonds) issued and once they're sold, that's it."
LaBega said, "People were calling us after the deal had been done, asking if they could still get to buy our bonds. But there were no more left. It's like going to a restaurant and there is no more food to serve. This was because the 5.5 per cent fixed interest rate is very good. It's a good deal. Good money always finds good deals, but bad deals don't find money."
The SXM bond issue opens up the door for other corporate entities on the island to try to do the same. According to Beaujon, some government-owned companies in St. Maarten have obtained substantial loans in the past backed by the Central Bank, "which issued a guarantee to buy those bonds back in case of default. The Central Bank does this for an issue of 'national interest.'"
"We do have a lot of liquidity now, because the debts of the former Netherlands Antilles have been paid off since 10-10-10," he added. This means that the pension fund, insurance companies, banks and other financial institutions can invest their excess liquidity in bonds, especially St. Maarten bonds.
With the St. Maarten government unable to issue bonds of its own due to the conditions attached to its attainment of its new constitutional status within the Kingdom of the Netherlands, despite receiving Moody's sovereign credit rating of Baa1, the airport may have charted a new path to financing major projects in St. Maarten.
(The Daily Herald)

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