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HAGATNA, Guam (Pacific Daily News, May 7) - A new credit report
raises doubts about the local government's ability to take on more debt.

Standard & Poor's yesterday downgraded GovGuam's general
credit rating one notch lower, from ''BB'' to ''B,'' which is next-to-last in a
range of seven major rating categories.

The highest, ''AAA,'' is for debtors with extremely strong
capacity to meet its financial obligations, according to Standard & Poor's.
The lowest is ''CCC.''

The ''B'' rating also pushes GovGuam's creditworthiness further
into a territory where bond investors would stay away from.

The downgraded credit status comes at a time when the local
government is preparing to borrow more than $200 million on the bond market.

Still, a Guam Economic Development and Commerce Authority
official voiced confidence GovGuam can still pursue its bond-borrowing goal --
but it will take more effort.

''This downgrade means we're going to have to work a little bit
harder,'' said Ed Untalan, GEDCA's finance and administration director.

High on the list of GovGuam's things to do: Convince Standard
& Poor's to issue a separate debt rating specifically for the planned
$200-million-plus bond debt.

GovGuam also may have to pay more for bond insurance premium,
estimated at between $14 million and $16 million, according to Untalan.

Untalan said GovGuam can request what he called an ''underlying
credit rating'' only for the planned borrowing of more than $200 million.

GovGuam will need a minimum Standard & Poor's rating of
BBB-minus for the planned bond borrowing to meet bond insurance coverage, he
said. That's at least two steps up from its current ''B'' rating.

GovGuam also will have to explain to Standard & Poor's that
the planned $200-million-plus bond debt will take priority payment out of the
local government's Gross Receipts Tax collections.

''We are going to show them that we are going to be dedicating
the GRT and lock-boxing it,'' Untalan said.

GovGuam must show progress in outsourcing government functions
to reduce the cost of running the local government, he said.

Untalan added that Guam also must prove that it is trying to
boost visitor arrival numbers.

According to Standard & Poor's, the debt-rating downgrade
''reflects further weakening of (the local government's) financial position due
to the combination of continued soft economic conditions and the effects of the
damage caused by two typhoons in 2002.''

''Guam's debt burden is high, with $416 million of outstanding
general obligation and other debt against its debt limit, or $2,687 per
capita,'' according to Standard & Poor's.

A Standard & Poor's report also states three main factors
that led to the rating downgrade:

· Guam's tourism-concentrated economic base ''is exposed
to the vagaries of the global economy, especially Japan's'';

· The local government's chronic budget imbalances; and

· A high debt burden exacerbated by sizable unfunded
pension fund liabilities that totaled $777 million as of September 2000.

Untalan said GovGuam's debt burden is $383 million -- not $416
million as mentioned in the Standard & Poor's report.

Untalan said GovGuam's debt load is translated into a debt ratio
of $2,475 for every person on Guam -- not $2,687 per capita as mentioned by
Standard & Poor's.

GovGuam's per capita debt ratio of $2,475 is just below the
$2,500 threshold for what's considered moderate, he said.

Untalan said the Standard & Poor's assessment also offers
what he called ''good news'' because it recognizes efforts by Gov. Felix
Camacho's administration to reduce costs, enhance revenue collections and
stimulate economic growth.

May 7, 2003

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