Virgin Islands' Matching Fund Securitization Corp. plans $1 billion refunding

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The U.S. Virgin Islands' Matching Fund Securitization Corp. plans to refinance $943.6 million of outstanding matching fund bonds as soon as this week.

The financially struggling territory’s Senate gave final approval for the deal Thursday night in an eight to six vote.

U.S. Virgin Islands Gov. Albert Bryan Jr.
U.S. Virgin Islands Gov. Albert Bryan Jr. has called for the securitization of the islands matching fund bonds as a step to deal with his government's financial problems.

The official statement was posted to MuniOs.com on Saturday. The offering is for $760 million of tax-exempt bonds and $184.6 million of taxable bonds.

The Matching Fund Securitization Corporation is a special purpose, independent and autonomous public corporation and government instrumentality of the U.S. Virgin Islands. The matching fund bonds are about 54% of the government’s bond debt outstanding. They are supported by taxes on the sale of rum in the United States.

The official statement indicates the tax-exempt bonds will have maturities from 2021 to 2039. The taxable bonds will have maturities from 2023 to 2028.

Ramirez & Co. is the lead underwriter on the deal. Bank of America Merrill Lynch and Jefferies are junior underwriters.

Ramirez is sounding the market right now, said Richard Tortura, president of Capital Market Advisors, the Virgin Islands’ financial advisor.

“It’s a brilliant structure,” Tortura said of the new bonds. “We think it will get a good reception.” Tortura said the bonds might be sold as soon as this week. If that doesn’t take place, the hope is to sell the bonds by the end of the month.

There are 10 series of bonds that are being refunded, Tortura said. Two of the series have no call feature. Others are not currently refundable as tax-exempt. Some of the latter will be offered in the market in a tender.

The government will gain benefits by selling them this fiscal year as opposed to next; the U.S. Virgin Islands' fiscal year comes to a close at the end of this month.

Kroll Bond Rating Agency has given the bond a BBB rating with a stable outlook. No other ratings agencies are rating the deal.

Moody’s Investors Service rates the existing senior lien matching fund bonds Caa2 and the subordinate lien matching fund bonds Caa3.

Total long- and short-term debt outstanding for the U.S. Virgin Islands as of Sept. 30, 2018, according to comprehensive annual financial statement, was $2.642 billion. According to the OS for this deal there is currently $2.11 billion of bond debt outstanding. This excludes the Water and Power Authority.

Along with a substantial amount of debt outstanding, the Virgin Islands’ government is also struggling with how to deal with $3.35 billion in net pension liabilities. Fitch rates its Water and Power Authority’s debt CCC and has it on ratings watch negative.

Gov. Albert Bryan Jr. said that selling the refinancing bonds would help put some money toward the underfunded pensions. He is also proposing the legalization of marijuana and the taxation of its sales as another step toward improving the islands’ finances.

Squire Patton Boggs is the bond counsel for the deal.

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U.S. Virgin Islands Government of the Virgin Islands Virgin Islands Public Finance Authority Virgin Islands Water and Power Authority
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