Agencies uphold V.I. bond ratings

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ST. THOMAS - The day after Gov. John deJongh Jr. sent a new borrowing proposal to the Senate, two national ratings agencies upheld the previous investment grade bond rating on the territory's Gross Receipts Tax bonds.

In a report released Tuesday, Fitch kept the Gross Receipts Tax bond rating at BBB.

Standard & Poor's ratings services also kept their BBB+ rating on the territory's Gross Receipts Tax bonds.

Standard & Poor's reported a stable outlook for the territory. According to the rating agency, the stable outlook is based on the expectation that the government will increase the Gross Receipts Tax to preserve debt service coverage if needed.

"Although we don't anticipate changing the rating within the next two years, weakening of the revenue stream due to prolonged dislocation in the economy, natural disaster, or tourism decline could put pressure on the rating. Also, a significant decrease in debt service coverage due to additional issuance to fund government operations or capital projects could also affect the rating," Standard & Poor's said.

Fitch was more cautious in its negative outlook for the territory, citing a weak financial position and a high burden of debt.

"Longstanding fiscal challenges worsened in the recent downturn with sharp revenue declines, prolonged, unresolved property tax litigation, high fixed-cost burdens, and difficulty in reducing expenditures. These fiscal challenges were compounded by the closure of HOVENSA, the USVI's former largest employer and taxpayer.

"The territory has relied on borrowing to both close its operating gaps and maintain liquidity, and financial operations are expected to remain structurally imbalanced for the next several fiscal years. Fitch believes future budgeting options are limited," the rating agency reported.

Fitch noted that the territory's tax-backed debt is very high, and requires that a large amount of the territory's revenues must be pledged for debt service, which reduces fiscal flexibility.

"Other liabilities for pensions and unpaid retroactive salaries further weigh on the territory's limited resources," Fitch said.

Finance Commissioner Angel Dawson Jr. acknowledged that Fitch's negative outlook sends a cautious warning.

"The economic challenges continue," Dawson said. "Therefore, in a way it's also a bit of a warning, or forecast, as to what they see happening in the future if these economic trends continue."

However, Dawson was optimistic about the ratings agencies' outlook for the Gross receipts Tax bonds.

"This is what you would consider a good medium-grade rating," Dawson said. "It's solidly investment grade."

He said many investors who would purchase the territory's bonds are required to buy investment grade bonds.

"That is definitely a good thing and really makes our bonds that much more marketable," Dawson said.

Fitch downgraded the territory's General Obligation rating. However, the V.I. government has no outstanding General Obligation bonds and does not plan to issue any, Dawson said.

"So, the implied rating for the General Obligation bonds have no impact on this series of bonds because it simply doesn't apply," he said.

Fitch has left the territory under a negative outlook, citing the territory's weak economy and concerns that the territory has over-leveraged the Gross Receipts Tax revenue source.

The Virgin Islands already has $696.9 million in outstanding Gross Receipts Tax bonds.

Monday, the governor sent legislation to the Senate seeking authorization to borrow an additional $169 million - although only $99 million of that would be backed by Gross Receipts Taxes.

The remaining $70 million will be borrowed in GARVEE bonds, which are repaid with future annual federal highway funding and will not impact the General Fund, according to deJongh.

Standard & Poor's gave the territory's GARVEE bonds an A rating.

"The GARVEE rating is the highest rating we have yet achieved, and together with the reaffirmation of the GRT ratings emphasizes that even as we have been dealing with extraordinarily difficult financial circumstances, we have continued to assure investor confidence and maintain market access," deJongh said in a written statement.

- Contact reporter Aldeth Lewin at 714-9111 or email

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