U.S. Virgin Islands rum tax bonds' outlook raised by KBRA

Bloomberg News

KBRA raised the outlook on its BBB rating on U.S. Virgin Islands rum tax bonds to stable from negative, citing the federal government's permanent increase to the rum cover over rate earlier this month.

"The permanently increased rate, in KBRA's view, should help alleviate credit pressure created by an ongoing, multi-year trend of declining pledged Matching Fund receipts," the agency said.

The receipts in fiscal 2025 associated with a rate of $10.50 per proof gallon provided coverage of 1.83 times maximum annual debt service, the first time the receipts declined below 2.0 times.

"KBRA anticipates that the increased cover-over should stabilize MADS coverage to at or near 2.0 times over the near term," KBRA said.

The bonds were issued by the Matching Fund Special Purpose Securitization Corp., which the U.S. Virgin Islands created in 2022 to be a bankruptcy-remote entity. The original par was $955 million.

The bonds may also be affected by Americans' taste for alcoholic beverages and particularly rum. There was a 9.1% decline in Virgin Islands rum sold in the United States in fiscal 2025 compared to a year earlier.

The increase to $13.25 per proof gallon of rum from $10.50 was in the "One Big Beautiful Bill" President Donald Trump signed on Independence Day.

Bondholders have first lien on the rum cover over from taxes on the Virgin Islands rum in the 50 states.

KBRA lowered the outlook on the bonds in April, citing the 1.83 times coverage.