The Fitch rating agency has downgraded their ratings of an array of V.I. bonds, further eroding the credit and increasing the borrowing costs for the territory. The move, announced by the agency Monday, is not a surprise. After the credit rating agency Moody’s Investor Services announced June 30 it had lowered the ratings on about $1.24 billion in V.I. debt,V.I. Public Finance Authority Executive Director Valdamier Collens told senators the two other ratings agencies: Fitch and Standard and Poor, could well follow suit. (See Related Links below)
In its explanation of the move, Fitch, like Moody’s, pointed to the territory’s rapid accumulation of debt as it continues to finance ongoing budget deficits with borrowing, as well as the massive shortfall in funding to the V.I. government pension plan.
It also points to the possibility that the federal government might act in the future to help the territory in a way that affected lenders, citing the passage of legislation to help Puerto Rico.
"The passage of the Puerto Rico Oversight, Management, and Economic Stability Act does not currently apply to the Virgin Islands. However, it led Fitch to conclude that this assumption can no longer be the basis for a rating above the USVI’s general credit and triggered the placement of the USVI’s dedicated tax bond ratings on negative watch," Fitch wrote in its explanation of the move.
"The adoption of PROMESA demonstrated the capacity of the federal government to adopt legislation controlling territorial bankruptcy in much the same manner that a state might do to control the ability of municipalities to seek bankruptcy protection. As a result, going forward Fitch will treat the USVI as analogous to a local government in applying dedicated tax bond criteria and believes that GRT and matching fund bondholders are exposed to the operating risk of the USVI," Fitch officials wrote.
The rating downgrades apply to over $2 billion in pre-existing V.I. government debt and a little more than $400 million in 2016 bond issuances.
Fitch is threatening to further downgrade some V.I. debt unless the V.I. passes legislation to "create a statutory lien" on Matching Fund debt secured by federal excise taxes, saying: "Fitch believes a statutory lien would enhance the recovery prospects for bondholders should the federal government adopt legislation in the future allowing for a restructuring of USVI-backed debt. Failure of the USVI to pass the proposed legislation to create a statutory lien would result in downgrade of the bond ratings … ."
The V.I. Water and Power Authority has also suffered recent downgrades of its bond ratings. (See Related Links below)
Fitch said it is giving the following 2016 bond issuances, expected to be negotiated in September a "BB" rating:
–$217.135 million VIPFA revenue bonds (Virgin Islands gross receipts taxes loan note) series 2016A (senior lien – capital projects and working capital);
–$126.09 million VIPFA revenue bonds (Virgin Islands matching fund loan note) series 2016A (senior lien – capital projects and working capital);
–$69.28 million VIPFA revenue bonds (Virgin Islands matching fund loan note) series 2016B (subordinate lien – capital projects and working capital).
Fitch downgraded the Issuer Default Rating (IDR) of the Government of the Virgin Islands to B+ from BB- and downgraded the ratings of USVI dedicated tax bonds issued by the VIPFA as follows:
–$722.3 million gross receipts tax (GRT) revenue bonds, downgraded to ‘BB’ from ‘BBB’;
–$773.4 million senior lien matching fund revenue bonds, downgraded to ‘BB’ from ‘BBB’;
–$155.1 million subordinate lien matching fund revenue bonds, downgraded to ‘BB’ from ‘BBB-‘;
–$237.1 million subordinate lien matching fund revenue bonds (Diageo project) series 2009A, downgraded to ‘BB’ from ‘BBB-‘;
–$35.6 million subordinate lien matching fund revenue bonds (Cruzan project) series 2009A, downgraded to ‘BB’ from ‘BBB-‘.