In Stinging Blow To VI, S&P Further Downgrades Territorys Matching Fund And Gross Receipt Tax Bonds

[TexasTowelie]

In roughly 24 hours following Fitch’s downgrade of the territory’s bonds and its issuance of a negative outlook, S&P — another major U.S. ratings firm whose guidance investors depend on heavily when making decisions — has downgraded the territory’s matching fund (rum cover-over) and gross receipt tax bonds further into junk status, with the firm basing its decision on “fiscal pressures”. S&P also gave the territory a negative outlook; the firm’s last downgrade of the territory’s bonds came in January.

With two of the three major U.S. ratings firms issuing the USVI stinging downgrades and outlooks almost in tandem, a third action by Moody’s would not come as a surprise. And the downgrades could not come at a worse time for the territory; even before the latest downgrades, the Government of the Virgin Islands (G.V.I.) already had no access to the bond market, which the G.V.I. had used yearly to meet a structural deficit of roughly $100 million. Lawmakers and the Mapp administration have since attempted to address the money issue by enacting new tax laws while implementing belt-tightening measures, but so far these moves have not produced substantial results.

S&P says the ‘CCC+’ rating on the matching fund and gross receipt tax bonds reflect its view of USVI’s persistent fiscal and liquidity pressures in the face of a continued inability to access the capital markets, as reflected in growing payables despite the adoption of its recent five-year plan, said S&P Global Ratings credit analyst Oladunni Ososami. S&P says it believes ongoing liquidity pressures and the potential inability of the territory to meet ongoing business operation obligations indicate near-term liquidity pressures consistent with its “Criteria for Assigning ‘CCC+’, ‘CCC’, ‘CCC-‘, and ‘CC’ Ratings” (published Oct. 1, 2012, on RatingsDirect).

While repayment of the notes may not face an immediate liquidity crisis in the next 12 months, given the current deposit of pledged revenue to the trustee account for next year’s debt service, S&P believes repayment of the notes appears unsustainable in the long term, given the territory’s dependence on future favorable conditions to meet its financial commitments.

Read more: http://viconsortium.com/business/in-stinging-blow-to-usvi-sp-downgrades-territorys-matching-fund-and-gross-receipt-tax-bonds/

[raven mad]

1. Ouch.

Have things really gotten that bad there? Saved the link for reading later/earlier (it's 3:25 a.m. here, and I'm drooping a bit). I'm not great on business/financial stuff but this looks rough.