Fitch and Standard & Poor’s – two of the three major credit rating agencies – kept their ratings of V.I. Public Finance Authority Gross Receipts Tax Bonds stable last week, according to Government House and the ratings agencies themselves.
On Wednesday, Fitch Ratings affirmed its ‘BBB’ rating for those PFA bonds, and earlier this week Standard & Poor’s also affirmed its BBB+ rating. If the rating had been reduced, it would be more difficult for the PFA to market its gross receipts tax bonds and it might have had to offer higher interest rates, costing the territory more and reducing the amount of available capital.
A Government House statement praised the Legislature, saying the good ratings news "was specifically a result of the courage shown by the Legislature in increasing the gross receipts tax rate at this difficult time."
Gov. John deJongh Jr. said his administration is "gratified" that Fitch affirmed its rating.
“The closing of Hovensa was a real blow, which has undercut our finances and is forcing us to take extraordinary measures to achieve fiscal stability. This action by Fitch, and by S&P as well, is an important step in assuring that we have the financial flexibility to meet our significant financial challenges,” deJongh said in the statement.
In its review, S&P noted the action taken to increase the tax rate as offsetting the anticipated adverse impact of the Hovensa closing, according to Government House.
Both Fitch and S&P have left the investment grade ratings on PFA Matching Fund Bonds unchanged, and appear to view them as insulated from the financial challenges facing the government.
Not all the news is good, however. While Fitch has affirmed and maintained its rating for gross receipts tax bonds for now, looking forward, it has revised its outlook to negative, suggesting it may reduce the rating in the future if conditions do not improve. Fitch cited “further erosion in the USVI’s financial position and/or deterioration in the USVI’s economy due to the Hovensa closure, beyond current expectations,” according to Government House.
Fitch also reduced its shadow general obligation rating on the government from BB+ to B, and revised its outlook to negative. But as the government has no outstanding general obligation bonds and relies principally on gross receipts tax bonds, there is little practical impact to that piece of bad news.
“The bond rating agencies and the institution investor community understand the strength of our bonds,” Commissioner of Finance and PFA Executive Director Angel Dawson said in the Government House statement.
“Whatever challenges we face, we are addressing head on, and the pledged revenues dedicated to our bonds and to our bondholders are unaffected and are fully secured. We have worked diligently with the rating analysts to make sure they have been fully apprised of the Hovensa situation, but also of the strong rebound in our tourism and other new initiatives that will affect our future,” Dawson said.
