NEW YORK - Moody's Investors Service has lowered the ratings on the U.S. Virgin Islands' gross receipts tax bonds to Baa2 from Baa1. The rating action applies to the Series 1999A, 2003 and 2006 revenue bonds (gross receipts tax loan notes) issued by the Virgin Islands government through the Virgin Islands Public Finance Authority.
The primary security for the bonds is a dedicated pledge of and first lien on the government's gross receipt tax revenues. The bonds are further secured by the general obligation of the Virgin Islands government. At this time, Moody's has also lowered the government's issuer (implied general obligation) rating to Baa2 from Baa1. The outlook on these ratings is negative.
The downgrade is primarily attributable to the depletion of GAAP-basis general fund reserves which are unlikely to be restored in the near future; the persistence of structural deficits and the need for deficit financings despite notable efforts by the government to restore balance; and additional fiscal pressure resulting from the announced closure of the Hovensa oil refinery.
High debt levels and large unfunded liabilities for pensions and OPEB are also credit negatives reflected in the rating.
The gross receipts tax bonds benefit from strong coverage by pledged tax receipts, but, in Moody's view, the structure of the bonds does not provide complete separation or insulation from the government's general credit position.