U.S. Virgin Islands officials are serving up a second rum deal, this time with Cruzan VIRIL Ltd., that would boost rum production and secure additional revenue for the territory.

The potential Cruzan agreement would mirror a contract that USVI forged earlier this year with Diageo PLC, maker of Captain Morgan rum, under which the Virgin Islands Public Finance Authority issued $250 million of rum-tax bonds to finance a new distillery in return for Diageo’s pledge to leave Puerto Rico and produce Captain Morgan rum in USVI for 30 years. Cruzan currently makes rum in St. Croix in the U.S. Virgin Islands.

Gov. John deJongh Tuesday night announced that Fortune Brands Inc., owner of Cruzan, would also agree to a 30-year commitment if the territory finances a new wastewater treatment plant and expansions at the Cruzan facility.

Plans include the VIPFA issuing $105 million of Cruzan project bonds to support the capital improvements, with that debt backed by future rum tax revenues generated from the site. The authority could sell $30 million of rum-tax bonds by the end of this year to finance the new wastewater treatment facility, according to David Paul of Fiscal Strategies Group, the authority’s fiscal adviser. Paul said the VIPFA has yet to select a lead underwriter on that transaction.

The authority would then sell the remaining $75 million next year to help expand the Cruzan distillery, a move that would boost its capacity by five million proof gallons per year. Current capacity is 10.5 million proof gallons annually.

“All investment and costs related to this project will be funded from the revenues generated through the sale of rum from the Cruzan distillery,” deJongh said in a televised statement. “As long as the Cruzan brand remains popular and grows, then investors in the bonds will be pleased and the people of the Virgin Islands will be the beneficiary of the partnership.”

Illinois-based Fortune Brands acquired Cruzan in September 2008. USVI’s legislature will now weigh in on the Cruzan proposal.

Increasing Cruzan’s production would generate additional rum tax revenue for the territory. Officials anticipate receiving approximately $195 million of such revenue from Cruzan rum sales beginning in 2013, up from the $124.8 million that USVI expects to receive in 2010, Paul said.

“Fortune Brands’ projections indicate that total proof gallon sales will grow from 9.4 million in 2010 up to $14.8 million by 2013,” Paul said.

The U.S. government charges rum distributors $13.50 per proof gallon, called cover-over revenues. USVI and Puerto Rico receive $13.25 of that tax. The territories then give a portion back to the spirit makers in the form of molasses subsidies and other tax breaks. The rum tax receipts also help USVI and Puerto Rico finance capital projects and social service programs in their jurisdictions.

The $13.50 per proof gallon tax will expire on Dec. 31. Historically, Congress has approved the $13.50 rate, but sometimes after an expiration date, creating a temporary period where the territories receive a lower $10.50 per proof gallon rate.

The VIPFA sold $458.8 million of new-money and refunding rum tax bonds on Oct. 1. Of that transaction, $89 million of tax-exempt, new-money debt priced with yields ranging from 2.17% with a 3% coupon on debt maturing in 2010 to 4.67% with a 5% coupon on bonds maturing in 2022.

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