The Virgin Islands Water and Power Authority's senior bond was downgraded three notches by Moody's Investor's Service over the utility's dependence on a weak local economy.
Moody's on Wednesday simultaneously cut the authority's senior bond to Caa1 from B1 and the subordinate bond to Caa2 from B2. The rating agency has a negative outlook on both.
The downgrades affected $119 million of senior bonds and $97 million of subordinate bonds, Moody's said. The rating agency's report pointed to the narrowly based economy of the territory and WAPA's linkages to the parent government's financial stress and the islands' continued weak economy. The government is an important customer of WAPA and has been slow in paying its bills, a problem that its financial crisis may exacerbate.
Moody's said WAPA has a "very high" adjusted net pension liability of about $220 million.
The rating also stems from the authority's "weak liquidity profile with currently around 5-7 days cash on hand," wrote Moody's associate vice president Kathrin Heitmann, senior vice president Kurt Krummenacker, and associate managing director A.J. Sabatelle.
WAPA gained an interim rate increase effective Feb. 1 that it hopes to make permanent. However, the analysts say that this positive is outweighed by the other negative factors.
WAPA communications director Jean Greaux Jr. declined to comment on the Moody's rating action.
The downgrade comes in the midst of a series of downgrades of the Virgin Islands government bonds. On Tuesday Moody's downgraded the senior lien of the islands' rum tax ("matching fund") bonds to Caa1 from B1 and the subordinate lien to Caa2 from B2.
An hour after the Moody's downgrade of WAPA, S&P Global Ratings dropped the senior rum tax bonds of the parent government to B from BB and the subordinated lien to B from BB-minus. It also downgraded the gross receipts tax bond to B-minus from B.
On Jan. 17 Fitch Ratings downgraded both the senior and subordinated rum tax bonds to BB-minus from BB. It dropped the gross receipts tax bond to BB-minus from BB.
The Virgin Islands unsuccessfully tried to sell a $219 million bond in mid-January. The government planned to use more than half of the proceeds for government operating expenses this year. It pulled the bond after investors sought interest rates that exceeded those in the secondary markets for existing Virgin Islands bonds maturing in 2036 by 69 basis points and for subordinate bonds maturing in 2035 by 78 basis points.
Gov. Kenneth Mapp has said without major tax or spending changes, the government may not have enough money to make the February payroll and definitely won't have enough for the March payroll.
Earlier this week Mapp submitted a proposal to the Virgin Islands Senate to increase taxes on cigarettes, alcohol, carbonated sugar beverages, and introduce a tax on time share rentals. Some members of the Senate have already voiced opposition to the measure.
