The U.S. Virgin Islands Senate approved the securitization of $1.1 billion of speculative-grade matching fund bonds.
The Senate approved the governor-supported bill eight to five on Friday.
“Their vote allows the Government of the Virgin Islands to explore the market and realize savings that can fund critical government needs, and that can help reduce the unfunded pension liability of the Government Employees Retirement System,” said Gov. Albert Bryan Jr. “The refinancing of our existing bond debt in this unprecedented low-interest-rate environment is too great an opportunity not to explore.”
The government has more than $3.35 billion in net pension liabilities.
The matching fund bonds are 54% of the government’s bond debt outstanding. They are supported by taxes on the sale of rum in the United States.
“The USVI, by approving the use of the new structure that subordinates the territory’s claim to matching fund revenues, will be giving up a fair amount of its negotiating power and legal leverage to bondholders in exchange for a modest amount of near-term savings," said Municipal Market Analytics Managing Director Lisa Washburn. "The anticipated savings will buy some time but it doesn’t come close to solving the financial challenges of the territory.”
MMA, in its Aug. 17 Outlook publication, said, the transaction, if executed, "likely puts off a necessary debt restructuring by a few years and probably makes it more costly. As municipal market participants have learned over the past several years, bondholders are smart to assume that they will be subordinated to the health, safety, and welfare of a government’s citizens if funds run short.”
On Saturday, Bryan said the securitization of the bonds through the use of a special purpose vehicle was an “incremental step in the right direction,” but that the U.S. Virgin Islands still had a great deal of work to do to resolve the territory’s fiscal challenges.
The governor hopes to complete the transaction before the end of September.
Moody’s Investors Service rates the senior lien matching fund bonds Caa2 and the subordinate lien match fund bonds Caa3.
