SAN FRANCISCO - Guam plans to access the market this week with $485 million of debt in two separate but interdependent bond sales, one of them speculative grade.

Both transactions are intended to raise enough funds to allow the Pacific island territory to close the door on years of litigation.

The territory plans to sell $283.2 million of general obligation bonds. Most of the proceeds would be used to finance long-overdue income tax refund payments and a legal settlement requiring the territory to pay cost-of-living adjustments due to government retirees between 1991 and 1995.

The GO bonds carry a B-plus rating from Standard & Poor's, the only agency that rates them.

The companion bond issue of $202 million, carrying a BBB-minus rating, will finance the cleanup, closure, and replacement of the territory's solid waste dump. The facility is operating under court-ordered receivership to fulfill a 2004 consent decree in which Guam agreed to clean, close and replace its Ordot Dump, which is leaching toxic contaminants.

The landfill bonds carry a higher rating because they are backed by so-called Section 30 revenue, which the territory receives from the federal government. The revenue is derived from federal income taxes paid by military personnel and federal civil service employees who are located on Guam or indicate it as their legal residence.

The debt is structured to pay that Section 30 revenue directly to the bond trustee, bypassing the junk-rated Guam government.

Guam last sold GO bonds in 2007, but it is facing vastly different market conditions this time.

The largest tranche from that $152 million deal, 2037 term bonds, was priced to yield 5.45% in October 2007. In the secondary market last month, those bonds traded at yields between 7.4% and 7.859%, according to Municipal Securities Rulemaking Board data.

With the GOs, "we're targeting major, mostly high-yield buyers," said Aulii Limtiaco, whose Pacific Public Finance Group LLC is financial adviser for Guam. "High-yield municipal bond funds, and then for the investment grades, the Section 30 bonds, we're looking at a larger universe of buyers."

Since Guam is a U.S. territory, interest on its bonds is exempt from federal, state and local income taxes.

Limtiaco, a Guam native, advised the territory for years as a banker with Banc of America Securities LLC, but she started her own advisory firm this year when her former employer downsized and consolidated its municipal bond operations with Merrill Lynch & Co.

This week's two separate bond sales are a package deal, driven by legal and political considerations.

The territorial government needs to close the landfill deal this month to meet a deadline set by the judge overseeing receivership. She gave the government until June 30 to come up with financing for the dump project, or it would be required to simply pay $1 million a week from its general fund.

But the territory's lawmakers conditioned the landfill bond deal on a successful GO sale, which would allow it to satisfy retirees and taxpayers who have been waiting years for payments and refunds.

Citi is running the books for the GO sale, with Piper Jaffray & Co. running the books on the Section 30 bonds. Each company is serving as co-manager on the other transaction.

The deals are scheduled to price tomorrow, though that could move to today if conditions are right, Limtiaco said last week.

The Guam government is "excited," said Tony Blaz, administrator of the Guam Economic Development Authority, which serves as the territory's debt administration arm. "We had very successful investor presentations."

The territory's government has sought to issue GO bonds for more than five years to settle its liabilities to retirees and taxpayers - plans that were delayed by a court battle that reached the Supreme Court in 2007.

The argument itself was a technical debate over the definition of the territory's debt limit in relation to property valuations. According to the official statement for this week's deal, the territory's government resolved the issue with a revenue-neutral change to the way it defines assessed valuations.

The Section 30 landfill bonds are planned as a mix of serial and term bonds, Limtiaco said last week. The GO bonds were tentatively planned as term bonds with 2014, 2019, and 2039 maturities, though another tranche may be added, she said.

Standard & Poor's upgraded Guam to B-plus last year, from B. However, the agency said in its rating report for this week's sale that the territory's government continues to have "highly speculative-grade characteristics," including large historical budget imbalances, continuous operating cash-flow pressures, a negative general fund balance position and a tourism-based economy that is vulnerable to economic cycles and severe weather events.

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