KBRA lowered to negative from stable the outlook on its BBB rating of U.S. Virgin Islands bonds supported by a federal excise tax on rum.
KBRA said it lowered the outlook of the Matching Fund Special Purpose Securitization Corporation bonds because the coverage of the maximum annual debt service had declined to 1.83 times in 2025 from a computed 2.97 times in the year the bonds were sold, 2022.
Coverage was also down from 2.28 times in 2023 and 2.14 times in 2024. The coverage calculations for 2024 and 2025 are estimates.
"KBRA views this level of MADS coverage as providing a limited cushion given the characteristics of the payment source," KBRA said in its report.
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The rating agency said there were two causes for the declining debt service coverage.
First, the portion of the rum excise tax going to matching fund receipts was cut to $10.50 per proof gallon from $13.25 in 2022, "due to Congressional inaction to maintain the extended rate," KBRA said.
Second, there has been a 14.9% decline in federally taxed rum proof gallons to fiscal 2025 from fiscal 2023.
A portion of the rum excise tax goes to bondholders, a portion to the rum producers, and most of the rest goes to USVI Government Employers Retirement System.
Bondholders have a first lien on the revenue.
KBRA says the rating is supported by "a strong legal framework" that insulates the matching fund revenues from the credit risk of the Virgin Islands.
Congress sets the level of the rum excise tax. The USVI delegate to the House of Representatives, Stacey Plaskett, has been unsuccessful in her efforts to increase the rum tax rate.
The Bond Buyer reached out to USVI Gov. Albert Bryan, Plaskett and USVI Senate President Milton Potter for comments but none responded.
Moody's has since withdrawn its rating of the U.S. Virgin Islands government due to a lack of information.
KBRA is the only agency to rate the 2022 Matching Fund Special Purpose Securitization Corporation bonds.
