S&P Global Ratings has placed its 'BB' and 'BB-' ratings on the Virgin Islands Public Finance Authority's matching fund loan notes senior- and subordinate-lien bonds, respectively, on Credit Watch with negative implications. At the same time, S&P Global Ratings placed its 'B' rating on the authority's gross receipts tax bonds on Credit Watch with negative implications.
"The CreditWatch placement follows the U.S. Virgin Islands' decision to delay the sale of the series 2016A senior- and subordinate-lien bonds, scheduled for Dec. 15, and reflects our view that credit quality could deteriorate further due to liquidity concerns if the USVI is unable to access the market on time," said S&P Global Ratings credit analyst John Sugden. To be clear, the timing of a bond sale, in and of itself, is not a credit factor and transactions are often delayed due to changes in market conditions that affect pricing; however, the USVI's need to access the market for liquidity makes the timing of this transaction increasingly important. We recognize that recent events, such as the post-election market selloff, the Fed's decision to increase interest rates, and increased uncertainty in the credit markets, have led several other issuers to delay the bond sales. The bonds were being issued to fund operating deficits in fiscal years 2017 and 2018 and provide much-needed liquidity in fiscal 2017. As we mentioned in our Dec. 1 analysis, demonstrating market access is a pre-condition required by the lender to allow the territory to make further draws on its line of credit. Although the USVI has indicated that it plans to re-enter the market in early January, there is no guarantee that market conditions will be significantly different, especially given the potential for continued market uncertainty prior to and immediately after President-elect Trump's inauguration on Jan. 20.
As we stated in our last analysis (published Dec. 1 ) for both securities, in our view, if market access becomes constrained, it could lead to the territory's inadequate ability or willingness to meet its financial obligations.
We expect to resolve the CreditWatch within the next 90 days and to lower the rating if we view the USVI's market access to be constrained or if we view the territory's ability or willingness to meet its financial obligations is otherwise compromised. We could remove the CreditWatch should the USVI demonstrate timely and sufficient market access to cover its liquidity needs for the fiscal year.
