The manner in which the government intends to deal with the Bahamas Electricity Corporation's (BEC) $450 million legacy debt is called ring-fencing, and Deputy Prime Minister Philip Brave Davis says Cabinet should be considering the matter "in short order".
However, at least one financial service professional is on record as unconvinced.
Davis is the minister of works and urban development, and has Cabinet responsibility for BEC. He told Guardian Business that the idea to ring-fence the debt evolved from an examination and assessment of proposals in response to the RFP (request for proposals) and the experience of the government in dealing with the Lynden Pindling International Airport (LPIA) funding methodology.
"We would not wish to discuss how it would work, as the details are still being negotiated," he said, "but the exercise's overarching objective is to lower the cost of electricity to consumers."
"The low cost would have an element for the retirement of rate reduction bond," he said. "Our objective will not be undermined by this approach."
The government initially intended to break BEC into power generation and distribution arms and sell off one or both arms, but has now decided instead to retain ownership of BEC and bring in a management company to run the corporation. In order to give "the new BEC" a clean start, the government has decided to ring-fence the corporation's crippling $450 million legacy debt, which would effectively remove the debt from BEC's books.
Davis told Guardian Business that a management company would be selected within the next two weeks.
Davis initially confirmed the government's intention to treat the debt this way when he spoke at the Bahamas Energy Security Forum, sponsored by the Bahamas Chamber of Commerce and Employers Confederation last week.
Davis said the move would result in an improvement in BEC's credit rating.
Meanwhile, Colina Financial Advisors Ltd. President Anthony Ferguson explained that usually when one issues a revenue bond, the revenue from the issuer is used to pay off the debt obligation.
"One can make the case that the current debt obligation of BEC is ring-fenced already, as when it was issued it was the intent that the corporation would use the revenue to service and pay off the debt," Ferguson said.
"The issue is that BEC cannot service its current debt obligation without government assistance. So I am not sure what will be ring-fenced or how this would improve the credit rating of BEC," he said. "As a stand-alone entity BEC will be rated below investment grade at best and probably even as junk bonds, meaning the rate would be significantly higher than current issued bonds today."

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