Credit firm re-assessing V.I. finances
Published: January 26, 2012
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Fitch Ratings, a global credit ratings firm, will issue a comprehensive review in February of the territory's already-strained economy, analyzing the HOVENSA closure.
Fitch Senior Director Marcy Block said the broad-reaching review will consider all financial indicators affected by the territory's largest private employer shutting down.
"It's hard to be specific at this point," Block said, referring to what the review will entail. "There's a lot of concern."
One factor the review will consider is how the V.I. government deals with its projected $67.5 million budget deficit. Fiscal Year 2011 closed with a $26.5 million budget deficit.
"Fitch is concerned that a wide-ranging impact on the USVI from the closure could compound an already unbalanced General Fund financial position and delay prospects for fiscal stabilization," according to a Fitch statement released Jan. 19, the day after HOVENSA announced it will shut down.
The review will be published after an "expected action to address a current fiscal year budget gap and receipt of additional information on the HOVENSA closure," according to Fitch's statement.
The Senate has not made a final decision dealing with the budget deficit since Gov. John deJongh Jr. proposed government employee layoffs to offset the projected deficit.
Almost 500 workers have been terminated since Dec. 30, and Gov. John deJongh Jr. said unless the Senate takes action, 500 more may be dismissed by the end of the month.
"We're watching what happens with the budget and we're looking to see where they land with that," Block said on Wednesday. "We're hoping to have a call with the government at some point next week."
The refinery's closure will have a "detrimental impact on the economy and financial operations of the U.S. Virgin Islands," according to Fitch's statement.
HOVENSA's tax contributions of an estimated $60 million annually will be lost, as will the island's largest fuel source.
The closure could threaten the BB+ implied general obligation bond rating and the BBB rating for V.I. Public Finance Authority's bonds secured by gross receipts taxes.
The Public Finance Authority rating could slip because of anticipated reductions in tax revenues, according to Fitch.
A BB+ rating is a step below investment grade. A BBB rating is the lowest investment grade Fitch recognizes.
Bonds issued by the Public Finance Authority that are secured by federal excise taxes and based on sales in the United States of V.I.-produced rum are more insulated from territorial economic pressures, according to Fitch's statement.
The rum bonds include a senior indenture rated BBB+ on the senior lien; BBB on the junior lien; and Diageo and Cruzan indentures each rated BBB with stable outlooks.
Those ratings depend solely on the continuation of Diageo and Cruzan's rum production.
- Contact reporter Michael Todd at 714-9104 or email mtodd@dailynews.vi.
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