U.S. Virgin Islands and Guam landed on Fitch Ratings’ rating watch negative, as analysts cited the implications of the Puerto Rico rescue legislation for the other territories.
The agency has a BBB-minus rating on Virgin Islands matching fund subordinate lien, Diageo project, and Cruzan project revenue bonds. It has a BBB rating on the territory's senior lien revenue bonds and gross receipts tax revenue bond.
Fitch rates the Guam business privilege tax bond A-minus.
The United States adoption of Puerto Rico Oversight, Management and Economic Stability Act on June 30, "fundamentally alters the premises used to rate certain tax backed debt issued by territorial governments distinct from and above the territory's Issuer Default Rating," Fitch said Wednesday.
Fitch has rated the securities higher than their issuer's IDR rating because of their legal security structures.
"Previously, territories were assumed to be like states, which would not themselves be subject to insolvency proceedings," Fitch Senior Directors Marcy Block and Karen Krop wrote. PROMESA changes this assumption. While passed with an eye to Puerto Rico, PROMESA applies to all United States territories.
"It is likely that Fitch will determine that the territory's Issuer Default Rating limits any security rating absent other legal protection," Fitch's IDR for the Virgin Islands is currently BB-minus with a negative outlook. Fitch does not have an IDR for Guam but plans to assign one pursuant to a revised tax-supported criteria.
Guam's general obligation debt is rated BB-minus by S&P Global Ratings.
Moody’s Investors Service rates the Virgin Islands matching fund senior and subordinate lien revenue bonds B1. It rates the Virgin Islands matching fund Cruzan project and Diageo project revenue bonds B2.
According to a May 31 Bloomberg article, Virgin Islands Gov. Kenneth Mapp said the islands didn't want to be covered by PROMESA. Before its passage, he said that it would tarnish the island's bonds.
According to a July article in St. Croix Source, Mapp said the Virgin Islands were in a different situation from that of Puerto Rico.
The Virgin Islands had a total of $2.4 billion in municipal debt across all issuers, according to a May 31 Bloomberg story.
The governments of Guam and the Virgin Islands couldn't be reached immediately for comment.
