Revolving Credit Facility (FOI)

Request

A

What is the interest rate charged and capacity on the credit facility taken out in 2019?

B

How much of the facility is being used as at the end of Feb 2021?

C

If the interest rate in A is not available for disclosure, what is the expected borrowing rate for the states?

D

Is it possible and is there appetite to redeem the bond issued early considering that interest rates are so low? Mortgages being around 1.6% and the bond being 3.75% plus discounted nominal. 

E

What is the notional and most recent fair value of the external bond. 

F

Why are the repayments to the past service liability (‘PSL’) significantly smaller than the increase? To illustrate the repayment was only eight million and the liability increase by 44m (around 10%) in the 2019 annual accounts.

G

How does the states expect to settle the PSL if the current repayments are insufficient and the debt is growing every year?

Response

A

The States of Jersey is bound by Confidentiality Undertakings which form part of the Revolving Credit Facility (“RCF”) Agreement. These undertakings do not permit the release of information relating to the details of the RCF which includes the interest rate charged. A summary of the RCF was provided in the press release issued on 15 May 2020 (link below), which confirms the maximum capacity is £500 million. Details of the amount drawn as at 31 December 2020 are currently qualified as exempt as they will be confirmed in the Government’s annual report and accounts which are due for publication within the next six weeks on the Government’s website.

£500 million Revolving Credit Facility supports pandemic response

B

This information is absolutely Exempt under Article 26 of the Freedom of Information (Jersey) Law 2011

C

It is not possible to confirm the expected borrowing rate for the States as the interest rate for each individual draw down is determined as and when monies are borrowed. The RCF provides flexibility to draw down at any time during the term of the facility and allows the States to determine the interest period for each draw down, within the RCF Terms and Conditions. The interest rates are currently linked to LIBOR (London InterBank Offered Rate) which are set on a daily basis, hence the interest rate for each draw down will be ultimately determined on the day funds are borrowed.

D

The States of Jersey 2054 bond is redeemable at any time providing the relevant notice period has been provided to Noteholders. In the event of a full redemption this would require repayment of the notional bond amount of £250million plus a payment calculated with reference to the Gross Redemption Yield. The Gross Redemption Yield is a measure of the rate of return offered by an investment (in this case with reference to the UK Gilt that the States’ Bond was originally priced against) up until the date the States’ bond matures.

Noteholders are currently receiving a fixed coupon of 3.75% on a semi-annual basis until June 2054. In the event of an early redemption, with the assumption that if the investors are not investing in the States’ bond then they are investing in the risk-free rate (the relevant UK Gilt) based on the Gross Redemption Yield. The Gross Redemption Yield is used to calculate the price at which the bonds would need to be repaid at, with interest and repayment of the bonds being discounted at the Gross Redemption Yield. Using the example provided by the requestor this would require payment of approximately £137million to Noteholders, in addition to the £250million value of the bond, calculated as follows:

Future value of cash flows: £250,000,000 x (3.75%-1.60%) x 33 years to maturity = £177,375,000

Present value of cash flows: £137,390,483 (discounting semi-annually over a period of 33 years at a discount rate of 1.60%)

(Note: This is a simple calculation for illustrative purposes and is not intended to accurately reflect the Gross Redemption Yield)

E

The notional value of the bond is £250million. An approximate fair value of the bond as at 17 March 2021 is £360 million.

F

The Public Employees (Pension Scheme) (Funding and Valuation) (Jersey) Regulations 2015 defines the repayment mechanism for the PECRS past service liability (‘PSL’). Under these Regulations the Government is required to make defined annual repayments and by making these repayments the PSL will be fully repaid on 29 September 2053. In 2019, the required payment was £8 million.

G

The valuation of the PSL is linked to future expected investment returns. The value of the PSL may increase or decrease in a particular financial year due to changes in expectations on future investment returns. In 2019 changes in expectations for future investment returns resulted in the PSL increasing but in other years changes in investment returns have reduced the value of the PSL. Irrespective of the valuation of the PSL, the Government is only required to make repayments in line with the Regulations to secure full repayment by September 2053.

The Government will fully settle the PSL by September 2053 by meeting the annual repayments required in the Public Employees (Pension Scheme) (Funding and Valuation) (Jersey) Regulations 2015. A fully copy of these Regulations can be found at the following link:

Public Employees (Pension Scheme) (Funding and Valuation) (Jersey) Regulations 2015

Articles applied

Article 26 Information supplied in confidence

Information is absolutely exempt information if –

(a) it was obtained by the scheduled public authority from another person (including another public authority); and

(b) the disclosure of the information to the public by the scheduled public authority holding it would constitute a breach of confidence actionable by that or any other person.

Article 36 - Information intended for future publication

(1) Information is qualified exempt information if, at the time when the request for the information is made, the information is being held by a public authority with a view to its being published within 12 weeks of the date of the request.

(2) A scheduled public authority that refuses an application for information on this ground must make reasonable efforts to inform the applicant –

(a) of the date when the information will be published;

(b) of the manner in which it will be published; and

(c) by whom it will be published.

(3) In this Article, “published” means published –

(a) by a public authority; or

(b) by any other person.

Public Interest Test

Where Article 26 is applied to Part A and Part B a public interest test justification is not required as this is an Absolute Exemption.

Article 36(1) is also applied to the response in Part A. The annual audited accounts of the Government of Jersey are due for release within the next six weeks and it would not be in the public interest, nor would it be appropriate, to release information from those accounts until they have been formally signed off by the Government’s auditors.