Running a bit ahead of schedule, government officials announced Thursday that they had closed on the $399 million bond issue needed to keep the government running during the remainder of this fiscal year and possibly most of the next.
PFA financial advisor David Paul said Thursday evening that the bond closing — which officials had anticipated would happen sometime next week — went "extraordinarily well."
A record 70 buyers participated in the sale, and there were about $1.1 billion worth of orders for the $399 million in bonds, he explained.
"So there was wide and deep interest and support for what the government is doing," Paul said. "In addition, the interest cost was 5.15 percent — the lowest long-term bond interest cost the government has seen in recent memory."
Last year senators authorized the government to borrow up to $250 million to plug multi-million dollar funding gaps projected for both fiscal years 2010 and 2011. This initial proposal allowed officials to float bonds, tap into government public fund accounts, or turn to a bank or other financial institution for money.
At the time, the government opted to borrow $50 million from internal funds, and an approximately $200 million line of credit subsequently opened with the banking syndicate formed by Banco Popular and FirstBank.
Since then, officials have lobbied for more money to keep the government afloat, and senators recently passed a bill bumping the borrowing authorization up from $250 million to $500 million. At that time, officials said the plan was to float up to $250 million in bonds, put $100 million toward the line of credit and use the rest to cover this year’s $170 million budget shortfall.
At a recent Public Finance Authority meetings, it was said the government would be needing about an extra $160 million, which would free up $200 million to almost completely pay off the existing line of credit and $150 million to cover this year’s budget shortfall. Meanwhile, PFA board members voted at the end of last month to reinstate the old line of credit at a reduced amount, freeing up a new $125 million for FY 2011.
Officials have said that reduced FY 2011 budgets for departments and agencies, along with other cost-cutting measures, have reduced the $250 million deficit previously projected for FY 2011 and the need for a larger line of credit, which they said will only be tapped when necessary.
In a statement released late Thursday evening, Gov. John deJongh Jr. described the sale as "tremendously important" for the entire community, since the much-needed proceeds will keep government workers on the job and help maintain the local economy.
"I feel the pain of all of those who have lost jobs and fear for the future, and that is why we must lead, and use every tool available to us to keep moving forward, to keeping our people at work, and on the job," the governor said. "I hope all across our Virgin Islands will appreciate that today, through this hard work, thousands of our government workers will not go home, and that we as a community refuse to succumb to the economic pressures around us."
Meanwhile, it was also announced Thursday that Fitch Ratings had assigned a BBB credit rating (indicating a medium-grade investment) to another $42.2 million worth of bonds that will be used to expand St. Croix’s Cruzan Rum distillery. The sale of those bonds are still being negotiated are expected to sell around July 19, according to business wire reports.
Fitch also affirmed the BBB rating assigned to $39.2 million worth of bonds sold last December to finance the construction of a new wastewater treatment plant at the facility. Paul explained Thursday that the rating on these bonds, called parity bonds, have to be affirmed when new ones are issued.
