S&P Global Ratings raised the U.S. Virgin Islands’ outlook from “negative” to “stable” and affirmed its “A” rating on the V.I. Public Finance Authority’s outstanding grant anticipation revenue, or “GARVEE,” bonds.
The territory’s bond rating is poor, due to high debt levels and concerns over structural deficits and medium-term fiscal prospects. In December 2016 and January 2017, the V.I. government was unable to sell new bonds secured by its own revenue streams.
Federally funded post-hurricane reconstruction spending and insurance payments for reconstruction have temporarily boosted V.I. coffers, creating some fiscal wiggle room for the government. But there has not yet been a drastic change to analysts’ medium- and long-term projections.
These particular bonds are secured differently than other V.I. government borrowing. They are secured by future federal highway grant funds to the territory.
In 2015, the V.I. government secured $91 million in GARVEE bond funds for projects including the Melvin Evans Highway resurfacing, Veterans Drive project expansion, Spring Gut Road, Mahogany Road, Hams Bluff Road, Rattan Road, Sion Valley Road, downtown roads in Christiansted and federal routes in Frederiksted. Department of Public Works officials told senators in April that some $27.9 million of GARVEE funded work was planned for the 2019 fiscal year and another $45.6 million for 2020.
“The outlook revision reflects our assessment of the availability of VIPFA’s Transportation Trust Fund revenue given the severe weather-related impacts on the territory in recent years,” S&P Global Ratings credit analyst Kevin Archer said in a statement.
Earlier this month, Gov. Albert Bryan Jr. and members of his senior staff had a presentation for bondholders, buyers and other investors, marking the Government of the Virgin Islands reentry into the financial markets.
“This rating from S&P Global is a clear indication of the success of the Bryan/Roach administration’s pledge to stabilize the territory’s economy and restore trust in the government,” Bryan said in a statement “While this is a very positive signal from the bond markets, this is just the beginning and my administration will continue to work toward fiscal stability,” he said.
In September, Moody’s Investors Service confirmed a “stable” U.S. Virgin Islands’ Caa3 issuer rating, as well as the ratings on the territory’s four liens of matching fund revenue bonds issued through the Public Finance Authority.
“The stable outlook reflects recent improvement in the government’s liquidity and near-term financial position driven by the receipt of disaster assistance and loans from the U.S. government, a surge in tax revenues associated with local reconstruction activities and an increase in concession fees from the Limetree refinery facility,” Moody’s said.
The territory’s GARVEE bonds are backed by the VIPFA’s Transportation Trust Fund. Following the immediate impact of hurricanes Irma and Maria in September 2017, the VIPFA projected that Transportation Trust Fund revenue would decline in fiscal year 2018 and noted the potential for further declines in this revenue or a diversion to other critical needs.
“However, the pledged TTF revenue was not affected as originally forecast, and the additional certainty to the availability of this revenue has stabilized our view of the credit profile,” S&P Global said.
The GARVEE bonds are special, limited obligations of the VIPFA, secured by a first lien on federal highway grant revenue and a fully funded debt service reserve fund. According to Government House, the Transportation Trust Fund revenue provides a backup pledge on the bonds, which mitigates any funding disruptions at the federal level.