Virgin Islands WAPA may stop debt service fund payments

The U.S. Virgin Islands Water and Power Authority said it may stop making payments to debt service funds soon.

In a posting to the MSRB's EMMA website, WAPA said it is running low on cash and may be forced to take this or other cash-conserving steps soon.

"If liquidity strains persist, this could result in temporary shortfalls of net electric revenues necessary to make timely and full monthly deposits to the debt service funds under the [bond] resolution," according to the posting. WAPA said its debt service reserve and escrow funds are "fully funded" with $34.4 million.

Three factors remain "significant strains on the authority's liquidity," the posting said.

The authority didn't complete a U.S. Housing and Urban Development grant funded acquisition of propane supply and storage assets on St. Thomas and St. Croix owned by Vitol. The authority expected to receive the HUD grant money by Aug. 15, but now it's expected in the first quarter of 2024, and the authority said it "cannot predict with certainty if and when final grant funding will be received." Until the acquisition, WAPA had been paying above-market prices for propane from Vitol; about $2.3 million per month more than expected.

Another factor is it expected that HUD grant-funded Wärtilä propane generators would be installed on St. Thomas by the end of this year, but that won't happen until the end of March, and they will be useless until the propane supply and storage assets are installed and the date for that is unclear. This will save WAPA $2.5 million a month since it will be able to substitute cheaper propane for more expensive diesel to generate electricity.

Finally, it said the Virgin Island government hasn't paid its utility bills on time since the American Rescue Plan Act financial support ended. The government accounts for about 25% of the authority's monthly billings and the amount the government owes has increased by 40% since July 31, WAPA said, with current and past due bills of $23 million.

"As a consequence, the authority has had to continue its practice of deferring vendor payments and other obligations in order [to] preserve its liquidity," the authority said.

WAPA's statement "makes it clear that the politics between the governor and the authority are driving everything," said Joseph Krist, publisher of Muni Credit News. "The governor has never seemed onboard with the effort to stabilize the authority. At the same time, the central government has its own cash flow issues so there's a reason it doesn't pay its power bill. The grant money can't come fast enough and the execution of the replacement generator project must be flawless so that's a lot to ask based on history. It's not clear the political support is there to help pull that off."

A spokesman for Gov. Albert Bryan didn't immediately respond to a request for a comment.

Unless the financial pressures get resolved soon, the authority "may be forced to additional temporary measures to preserve liquidity," such as deferral of payments to vendors, suspension of services to delinquent government customers, requesting a rate increase from the Public Services Commission, and stopping of monthly debt service deposits.

Puerto Rico Clearinghouse Principal Cate Long said the authority's debt service reserve would cover bond payments for a year. The authority could raise rates, which would improve revenues, she said. 

According to unaudited figures, as of September WAPA had $15 million of current liabilities on bonds, $470 million of current liabilities, $179 million of long-term electric system review bond debt, $284 million of total long-term debt, and $1.081 billion of total liabilities.