Virgin Islands makes tender offer for matching fund bonds

The U.S. Virgin Islands is making a tender offer to holders of a portion of outstanding matching fund bonds in anticipation of refunding all the bonds later this month.

The offer to holders of about $165 million of the bonds expires 5 p.m. Friday. The U.S. Virgin Islands had $950 million of senior and subordinate lien matching fund bonds outstanding as of April 30, 2021, according to Moody’s Investors Service.

The offer is being made by the Virgin Islands Public Finance Authority and the newly created Matching Fund Special Purpose Securitization Corporation.

The completion of the tender offer is subject to satisfaction or waiver of the successful execution of the bond refunding at the end of March and the ability to use the proceeds to purchase the tendered bonds.

The USVI government intends to issue 2022A tax-exempt and 2022B taxable bonds at the end of March. The government plans to use the latter to refund matching fund bonds that are not being tendered because holders chose not to tender them or because they are ineligible for tendering.

The planned bond refunding is the government's means to escape financial catastrophe by using the debt service savings to prop up its multi-billion-dollar underfunded retirement plan, which analysts say would otherwise run out of money in 19 months or so. Moody’s rates the senior matching fund bonds Caa2 and the subordinate matching fund bonds Caa3.

St. Thomas, U.S. Virgin Islands
The U.S. Virgin Islands government is taking the initial steps to prepare for a refunding of over $900 million of outstanding matching fund bonds.
Bloomberg News

“The tender appears to make good economic sense,” said John Hallacy, president at John Hallacy Consulting. “All of the coupons on the existing bonds except for one maturity are at 5% or more. I have not heard price talk on new bonds but it is fair to say that the levels should be significantly below these existing coupons.

“The math may change with the market, but the savings to be had represents a sound public finance assessment of the potential benefit,” Hallacy said. “Whatever bonds are not tendered will be subject to being called out. The intent is clear.”

The offer is for Series 2012A (working capital) and 2013A and B (senior lien) bonds. The first, $135.065 million of Series 2012A bonds, the issuer is offering: CUSIP (9276767RH) 2022 maturity with a 4% coupon and a purchase price as a percentage of par of 103.124%, CUSIP (927676RJ) 2027 maturity with a 5% coupon and a price of 103.622%, and CUSIP (927676RK) 2032 maturity with a 5% coupon a purchase price of 103.622%. The second, $8.625 million of series 2013A bonds, CUSIP (927676SH) 2024 maturity with a 5.25% coupon at a 108.096% purchase price and CUSIP (927676SJ) 2024 maturity with a 5% coupon at a 107.718% purchase price. The last, $22.020 million of series 2013B bonds, CUSIP (927676SK) 2024 maturity with a 5% coupon at a 107.71% purchase price. All the maturities are on Oct. 1.

The purchase prices do not include the earned but unpaid interest due on the settlement date of March 31. These sums will also be paid.

The tender offer is dependent on the successful use of both the 2022A and 2022B bonds to refund the existing bonds and the choice to go through with doing the refunding based on their financial benefit to the government, according to offering documents.

Ramirez & Co. is the dealer manager for the tender offer and Globic Advisors is the information agent and tender agent. Squire Patton Boggs LLP is bond counsel.multi-billion-dollar underfunded retirement plansay would otherwise run out of money in 19 months or so

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