Fitch assigns rating to new Government bonds

Government’s new Global Bond was given a AA- rating by Fitch.

The $750m bonds mature in 2024 and will go toward repaying public debt and fund current and future budget deficits.

The rating is in line with Bermuda’s long-term foreign currency Issuer Default Rating (IDR) of ‘AA-’ with a negative outlook.

In June Fitch downgraded Bermuda’s ratings and revised the outlook to negative from stable.

Key ratings drivers

Bermuda’s ‘AA-’ ratings are supported by Bermuda’s wealth (the fourth-highest GDP per capita among Fitch-rated sovereigns) and its high savings rate relative to its ‘AA’ peers. 

Fitch said Bermuda maintains its competitive advantage as a domicile for reinsurance and financial services companies due to its sophisticated legal system, strong regulatory framework, simple tax regime, proximity to the US and highly-skilled human capital.

It added Bermuda’s ratings are constrained by years of economic contraction, sustained high fiscal deficits, and increased government debt burden. 

The sovereign’s ability to sustain higher levels of debt is constrained by its narrow revenue base and its underdeveloped domestic public debt markets.

Fitch said Bermuda’s lack of economic diversification and excessive reliance on mature industries is limiting its growth prospects.

The negative outlook reflects continued uncertainty as to Bermuda’s fiscal and economic trajectory and the lack of a credible fiscal consolidation strategy.

Rating sensitivities

The rating on the aforementioned bonds would be sensitive to any changes in Bermuda’s Long-term foreign currency IDR.

Fitch added a lack of a credible plan to consolidate public finances, continued deterioration in the sovereign’s fiscal metrics and weaker-than-expected economic growth could put downward pressure on the ratings.

 Regulatory changes that hurt international companies operating in Bermuda could also undermine creditworthiness.

Resumed economic growth and concrete signs of fiscal consolidation and debt stabilization could reverse the current negative outlook on Bermuda’s ratings.