The U.S. Virgin Islands moved closer to cementing its relationship with rum-maker Cruzan VIRIL Ltd., as the territory’s legislature Tuesday evening approved $105 million of rum-tax bonds to update the company’s facilities.

In return for the financing, Cruzan has agreed to continue producing its rum in the islands for 30 years.

The bonds are backed by future rum-tax receipts. USVI and Puerto Rico, both rum producers, currently receive $13.25 of a $13.50 per proof gallon tax that rum distributors pay to the U.S. government each year. The rum-tax revenues are sometimes called matching fund revenues or cover over revenues.

Of the $105 million of borrowing, the U.S. Virgin Islands Public Finance Authority plans to sell $30 million of rum-tax revenue bonds for the Cruzan project by the end of 2009, according to Julito Francis, VIPFA’s director of finance and administration. The proceeds will help begin construction of a new wastewater facility plant in St. Croix.

The Cruzan project is similar to the agreement that officials entered into earlier this year with Diageo PLC, maker of Captain Morgan rum. VIPFA sold $250 million of Diageo project bonds — which are also secured by future rum-tax receipts — in June to help finance a new distillery. Captain Morgan will move its production from Puerto Rico to the USVI. The territory anticipates receiving Captain Morgan rum-tax receipts beginning in fiscal 2012.

The VIPFA has $477.8 million of outstanding senior and subordinate rum-tax bonds. The authority also has $250 million of outstanding subordinate Diageo rum bonds. The Diageo debt receives rum-tax revenue after debt service costs on the authority’s senior and subordinate rum-tax bonds are met.

On Oct. 1, the authority sold $476 million of senior and subordinate rum-tax debt, including $95 million of new-money bonds for capital projects throughout the territory and another $363.8 million of refunding debt.

The tax-exempt, new-money portion, Series 2009A1, priced with yields ranging from 2.17% with a 3% coupon for debt maturing in 2010 to 5% with a 5% coupon for bonds maturing in 2039.

Francis spoke of the recent rum bond deal in his testimony Tuesday before the legislature.

“When we entered the market, we received orders for over $2.4 billion for our bonds, allowing us to push the interest cost downward, and further reduce our future interest costs,” according to Francis’ testimony.

Moody’s Investors Service rates the credit Baa2. Standard & Poor’s assigns its BBB rating to the senior-lien bonds and its BBB-minus rating to the subordinate debt.

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