The V.I. Water and Power Authority will attempt to issue $85 million in bonds in coming months to help finance the ongoing transition from fuel oil to LPG, WAPA officials said Friday.
The bonding issue comes as rating agencies have repeatedly downgraded the utility's bond in recent months. Bond agencies have cited increasing tensions between the utility and its regulating agency -- the Public Services Commission -- as one reason for past downgrades and ongoing negative outlooks.
If successful, the bond issuance would bring the utility's total debt load from $249,027,586 to $334,027,586, an increase of about 34 percent, according to figures provided by WAPA spokesman Jean Greaux Jr.
Bonds typically are issued for a face value with a percent interest charged over a series of years. Officials do not yet know what the interest rate for the bonds will be, Greaux said.
"That would be subject to the negotiations," he said. "We are going to negotiate the terms once we get to that point."
The territorial government has sought to issue municipal bonds to pay for working capital for the territory's hospitals, and they have been rebuffed by investors twice over concerns about the territory's financial landscape.
So far, investors have not shown the same concern about WAPA, Greaux said.
"We've gotten no indication that there is any lack of interest by investors," he said.
The utility has seen its LPG deliveries by fuel supplier VITOL cut amid negotiations over what the supplier says is $24 million in unpaid invoices. VITOL has also contracted with the utility to provide upgrades and construction for WAPA facilities, and threatened to scuttle those obligations as well, though discussion about the LPG provision remain under discussion, Greaux said.
All three major bond services have cut the utility's bond rating in some fashion.
The most recent downgrade was on Feb. 6, when FitchRatings downgraded $118,850,000 in electric system revenue bonds from B+ to CCC, and $96,800,000 in subordinated revenue bonds from B to CCC.
A B rating means "material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment, according to definition materials provided by Fitch.
A CCC rating, by contrast, means "Default is a real possibility," according to Fitch.
The February downgrade was made because of concerns about the relationship between WAPA and the Public Services Commission, according to an analysis released by Fitch at the time. The utility and the commission are in court over a temporary rate increase that the utility enacted even after commissioners voted to rescind it.
"The rating downgrade reflects the heightened credit risk as a consequence of WAPA's continued inability to gain regulatory approval of rate relief needed to address its exceptionally weak cash flow and liquidity," the analysis reads in part. "A rate increase that was authorized in January but then subsequently rescinded by the Virgin Islands Public Service Commission (PSC) evidences an unsupportive relationship that compounds the authority's consistently low unrestricted cash reserves, exceptionally high government receivables and depleted borrowing capacity under its lines of credit."
Fitch's downgrade followed a Jan. 25 downgrade from Moody's Investment Services, which cut bond senior lien bonds from a B1 rating to a Caa2 rating and subordinated revenue bonds to Caa2 from B2.
Moody's January downgrade was the third by that agency since June 2016.
S&P Global Ratings -- the third of three major ratings agencies in the United States -- last downgraded the utility's bonds in July 2016, when they downgraded both senior-lien debt from BBB- to BB+ and the subordinate revenue bonds to BB-.
Bond ratings can indicate the interest rates investors will require in order to lend the utility -- or government or company -- sums of money. Lower bond ratings can mean higher interest rates, meaning the cost of borrowing money becomes more expensive.
For WAPA, the sole source of revenue is ratepayers, meaning increase in borrowing expenses could come from local electric and water customers.
