Guam is preparing to move ahead with two sizable bond issues next month after receiving Standard & Poor’s ratings this week.
The agency affirmed its B-plus rating for the Pacific territory’s general obligation bonds, and assigned the rating to its coming $275 million sale.
It also assigned a BBB-minus rating to a planned $202 million limited obligation bond issue, backed by so-called Section 30 revenue. According to the rating agency, those revenues include federal income taxes derived from military personnel and federal civil service employees on Guam, or who indicate Guam as their state of legal residence.
The limited obligation bonds were able to secure an investment-grade rating because the security is structured so that Section 30 revenue is paid directly to the trustee, bypassing the Guam government, according to the rating report.
The limited obligation bonds are being issued to finance the court-ordered construction of a new solid-waste landfill and the closure of the island territory’s existing dump.
The GOs are being sold as part of a deficit-financing plan that is intended to pay past-due tax refund payments, a judgment ordering payments of past cost-of-living adjustments to government retirees, contributions to the retirement fund, and improvements to Guam Memorial Hospital.
“The rating continues to reflect the general government’s highly speculative-grade credit characteristics,” the Standard & Poor’s report said, including a massive historical budget imbalance and long-term liabilities, continuous operating cash-flow pressure, a negative general fund balance position, and a tourism-based economy that is vulnerable to economic cycles and severe weather events.
Tony Blaz, administrator of the Guam Economic Development Authority, the territory’s bond-issuing entity, said in a statement he was pleased with the B-plus rating.
“In light of the current U.S. economic recession where many states and communities have been downgraded, GEDA is encouraged to note that S&P has acknowledged Guam’s economic resilience and strength especially in light of the impending military build-up,” he said.
