Our Hospital Project Annual Bond Charge (FOI)

Request

I have recently been looking at the "Our Hospital Project Outline Business Case" (OBC) and I believe the Bond Annual Charge is higher than would be expected for current market conditions.

The OBC states on page 124 that "For the purposes of estimating the financial impact of the proposed Our Hospital project for the purpose of the OBC financial case, the following assumptions have been assumed:" and then lists the Bond Annual Charge at 2.5%. However, this is out of step for a borrower of our credit rating, and I fear that if it goes to a vote in the States Assembly as it currently stands, taxpayers will be hundreds of millions out of pocket over the coming decades.

Please could you set out:

A

The rationale for this assumption.

B

The supporting evidence of this assumption.

C

Any correspondence pertaining to the rationale of this assumption.

Response

A

As stated in the Outline Business Case (“OBC”) the annual cost of borrowing is “estimated” and an “assumption”. For the purpose of providing this estimate in the OBC, as required, a bond coupon of 2.5% is at the upper end of estimates of the cost of borrowing and is used to demonstrate a ‘worst case’ impact of costs. It is not intended to reflect the interest coupon that we would expect to have to pay on a bond if it was issued today.

We would also highlight that the States Assembly are not being asked to approve the debt instrument used for the purposes of borrowing, only the borrowing limit. The Minister for Treasury and Resources published the first Debt Framework for Jersey on 10 August 2021 (link below) which sets out a strategy for the management and oversight of current and future debt issuance.

r.132-2021.pdf (gov.je)

B

The Government receives regular advice from independent advisors and banks in relation to the potential coupons attached to bond issuance. This information is provided as part of engagements that are bound by confidentiality agreements and therefore release of the details is exempt under Article 26 of the Freedom of Information (Jersey) Law 2011- Information supplied in confidence.

To assist the requestor, the coupon applicable to a bond issuance predominantly comprises of two parts; the gilt yield and a credit spread. Gilt yields are available publicly and an example of this information is shown on the website link below:

United Kingdom Rates & Bonds - Bloomberg

Credit spreads are less readily available (usually only by subscription). But in a further effort to assist the requestor, we provide a link to the recent bond issuance in the Isle of Man which has fixed a coupon at a similar level to that which the States of Jersey would expect to receive if it were issuing a bond at the time of this response.

Isle of Man Government - Treasury prices £400m of sustainable bonds

C

The information provided by the States advisors is bound by confidentiality agreements and is exempt from publication under Article 26 of the Freedom of Information (Jersey) Law 2011 - Information supplied in confidence.

Article 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.