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The N.W.T. government just sold $180M in bonds. What does that mean?

The N.W.T. government has quietly entered the public debt sale market, selling $180 million in bonds to pay down its short-term debts.

Government says sale was intended 'to convert short-term debt into long-term debt'

The Legislative Assembly in the N.W.T. The territorial government sold $180 million worth of bonds last week in its first-ever public market financing. (Trevor Lyons/CBC)

The N.W.T. government has quietly entered the public debt sale market.

Last week, the territorial government raised $180 million through the sale of bonds due in September 2051. The sale, first reported by Bloomberg and confirmed by the territory's finance department, took place on Sept. 22, with a settlement date of Sept. 29.

The sale, the first of its kind by the N.W.T. government, was never the subject of a news release.

Todd Sasaki, a spokesperson for the Department of Finance, confirmed that the bonds were bought by 18 private investors at a coupon rate of 2.20 per cent. 

What does that mean?

Essentially, that means that the territorial government will pay 2.20 per cent of the $180 million — about $3.95 million annually — to bond holders, in exchange for the money now. The full $180 million must be repaid in 2051.

Those amounts owing do not change with inflation, meaning that when the government repays the full amount, it will be worth less in real terms than it is today.

Over a length of 30 years, the government will pay about $119 million in interest on the initial sale. Though the bonds can be traded among investors, the number that the territorial government pays remains the same.

Sasaki said the raised funds will be used "to convert current short-term debt into long-term debt," and that a portion will also be used by the Northwest Territories Power Corporation, although he didn't note any specifics.

In plain language, this is similar to the territorial government consolidating its credit cards — raising funds to pay down debt with less favourable interest rates, or that is coming due now, in exchange for a smaller, stable rate over a long period of time. 

Though the dollar amounts may turn heads, this is a fairly standard practice for provincial and territorial governments. All provinces in Canada issue bonds, and the Yukon issued its first in 2010.

As a point of reference, the territorial government's bonds are expected to yield higher rates than Ontario's — 115 basis points, or 1.15 per cent higher than a similar duration federal bond. Ontario's provincial bonds yield about 86 basis points, or 0.86 per cent, more than federal bonds.

It's unclear if the territory plans to issue more bonds anytime soon, though Sasaki told Bloomberg that they may do so to fund large capital projects in the future.

Why now?

Sasaki said the government chose to take this step now "to take advantage of favourable market conditions and low interest rates."

Global markets have been down for months as a result of the COVID-19 pandemic, and the Bank of Canada's benchmark interest rate currently sits at 0.25 per cent.

In July, Bank of Canada governor Tiff Macklem said "interest rates are going to be unusually low for a long time."

What this means is that the government is essentially taking advantage of market uncertainty by issuing bonds at a lower rate than it could have in a healthy global economy, meaning that it is able to keep interest payments on that $180 million relatively low.

Former minister says she was not informed

Though Sasaki said in an email to CBC that the sale was "planned," it still appears to have come as a surprise to the former minister of Industry, Tourism and Investment.

Great Slave MLA Katrina Nokleby, who was removed from her cabinet post in late August, said in a Facebook post through her MLA account on Saturday that she was unaware that the government planned to take that step. 

Nokleby characterized the sale as "$180 million in new debt," a statement that is technically true, but somewhat offset by the finance department's claim that the money will be used to pay down existing debt.

"I know I have been on a bit of a break but this was never raised to my recollection while I was on cabinet," she wrote. 

"Nor am I aware that regular MLAs were consulted. Future generations of NWTers will be paying for this for decades to come."

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