The U.S. Virgin Islands Water and Power Authority borrowed $14.8 million last week at a nearly 11% interest rate and plans to borrow $70 million more through bonds in the next nine weeks.
Saybrook Municipal Opportunity Fund -- managed by an investor in distressed and defaulted municipal securities through a private equity structure -- bought the note from the authority on Wednesday, according to Keith Wakefield, managing director of IFS Securities. IFS has been WAPA’s underwriter for over a year.
WAPA’s note sale comes after the Virgin Islands government attempted and failed to sell a bond in late summer of 2016.
The WAPA loan, labeled a bond anticipation note on the Electronic Municipal Market Access web site, has a 10% coupon and was sold at 97.917 cents on the dollar, leading to a 10.85% yield to maturity. The security matures on July 1, 2020.
Though listed as a BAN, it is really part of the authority’s planned total $85 million borrowing, Wakefield said.
In January Moody’s Investors Service said the authority had $215.6 million of bond debt outstanding. WAPA’s senior bonds are rated Caa1 by Moody’s, BB-plus by S&P Global Ratings, and CCC by Fitch Ratings.
In reports late this winter, Moody’s and Fitch both cited the authority’s low liquidity levels, high accounts receivables from a government going through its own financial difficulties, and weak economic conditions on the islands. S&P hasn’t released a report on WAPA since July 2016
The authority has struggled with the islands’ Public Service Commission to increase its electric rates, Fitch noted in February. The authority will do the remaining $70 million of borrowing in separate tranches, Wakefield said. IFS is now preparing to sell a $30 million portion for “working capital.”
The bulk of the $85 million will be used for improvements to the authority’s power plants, Wakefield said.
IFS and the other firms working on the deal are preparing offering documents for the coming bonds, he said. Sustainable Capital Advisors is the municipal advisor. Hawkins Delafield & Wood is the Bond Counsel.
Deal terms for the coming bonds have not yet been determined. Last week’s loan was tax-exempt and Wakefield said he expected most or all of what will follow will also be tax-exempt.
WAPA last sold a bond about a year ago.
Saybrook Fund Advisors, LLC, which oversees the investing fund, is based in Santa Monica, Calif.