Moody's downgrades Hawaii ratings ahead of bond sale

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The drop in tourism amid the coronavirus pandemic has resulted in a downgrade of Hawaii's ratings by Moody’s Investors Service affecting $9 billion in outstanding debt ahead of the state’s planned bond sale Wednesday.

The state’s general obligation bonds were downgraded to Aa2 from Aa1 ahead of its plans to issue $900 million in taxable GOs. The outlook was revised from negative to stable.

The downgrade “reflects the impact of the coronavirus pandemic on the state and its important tourism industry,” Moody’s analysts wrote. “The state is experiencing a severe decline in the state's tax revenues as a result of the rapid downturn in visitor arrivals, resulting in a multi-year fiscal imbalance and the need for significant spending adjustments.”

"We definitely have a budget crisis that we need to work through," Hawaii Gov. David Ige said.

The state projects it will have a half billion dollar deficit in 2025. It plans to access $350 million of the $403.9 million emergency and budget reserve fund for fiscal year 2021 and has an additional $191.3 million in the Hawaii Hurricane Relief Fund it can tap, according to an online road show.

"We definitely have a budget crisis that we need to work through," Hawaii Gov. David Ige said during a press conference Monday. "We are monitoring and advocating for additional support from the federal government. Significant federal support will be needed in order to avoid layoffs or pay reductions for public employees."

The state’s unemployment rate in June was 13.9%.

Moody’s also downgraded the state’s highway revenue bonds to Aa2 from Aa1, the Department of Hawaiian Homelands’ 2017 Series certificates of participation to Aa3 from Aa2 and the Department of Hawaiian Homelands’ Series 2017 revenue bonds to A1 from Aa3.'=

S&P Global Ratings and Fitch Ratings both assigned AA-plus ratings with negative outlooks.

BofA Securities is bookrunner on the bonds set to price Wednesday. PFM is municipal advisor. Hawkins Delafield & Wood LLP is bond counsel.

The bonds will fund various state public improvement projects.

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Downgrades Sell side Hawaii