Local financial experts say credit ratings by two international firms on some $40 million in bonds to support the V.I. government’s new agreement with Cruzan Rum will give the bonds a healthy position in the market and will result in more revenue for the territory in the long run.
While Public Finance Authority head Julito Francis said this week he wished the ratings could be higher, he explained Thursday that they are as good as could be expected under current market conditions.
It was announced during the November meeting that the bonds had been given a Baa3 (medium investment grade) rating from Moody’s, which was followed this week by a BBB- rating from Fitch. Francis said Thursday the two ratings are entirely consistent with ratings given to other government bond issues, including bonds floated to finance the new Captain Morgan Rum distillery on St. Croix.
"That’s a good thing," Francis said. "It means the rating agencies have seen our information and understand the strength of the project and the rum program."
Fitch also gave the bonds a stable outlook, saying in a recent release that projected cover-over revenues anticipated to come in once the project gets up and running "remain sound and sufficient to provide for sufficient debt service coverage."
The Public Finance Authority authorized the sale of up to $105 million in new matching fund bonds at its November meeting, which would be broken up into two transactions, with $40 million being floated first to finance the construction of a new wastewater plant for the Cruzan distillery on St. Croix. The remaining amount would be put toward expanding the existing facility, allowing Cruzan to step up its rum production to 16.1 million proof gallons a year.
The federal government currently collects $13.50 in excise taxes — commonly referred to as cover-over revenues — on each proof gallon of V.I.-produced rum sold throughout the mainland. Of that amount, $13.25 is remitted to the V.I. government.
Concerns over the rum war currently brewing with Puerto Rico and competition from neighboring Caribbean regions with lower overall rum production costs have been a cause for concern over the past few months but officials have said they are still anticipating a significant increase in projected cover-over revenues — about $133 million net annually — which would go toward repaying the new bonds, along with an older 1998 issue, and covering some of the government’s critical costs.
PFA board financial advisor David Paul said Thursday that the new agreement with Cruzan gives stability to both the company — which has gone through several changes in ownership over the years — and the government by keeping Cruzan in the territory for the next 30 years.
"This financing will address outstanding environmental problems with the Cruzan facility, which has been an issue of concern, along with the problem of the company’s future always being up in the air," he said, adding that the strength of the agreement and the government’s credit is affirmed by the bond ratings.
The bonds are scheduled for pricing next week, and officials expect the first transaction to close by the middle of the month.
