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Poor rating for separate deficit bond may scuttle float

By Steve Limtiaco

HAGÅTÑA, Guam (Pacific Daily News, May 22, 2009) - Standard & Poor's yesterday gave a favorable investment-grade credit rating to the island's proposed $202.2 million solid waste bond.

That rating will increase the chances of selling the bond and possibly lower the borrowing cost, the governor said yesterday.

But a good credit rating won't matter if the governor is unable to sell a separate $275 million "deficit financing" bond, which Standard & Poor's earlier this week rated as "speculative."

Guam lawmakers earlier this year tied the success of the solid waste bond to that of the $275 million deficit financing bond.

The solid waste bond can be floated "only" if the deficit financing bond is floated at the same time or earlier, according to Public Law 30-1.

That means if no one is willing to buy the deficit financing bond, Guam can't try to sell the solid waste bond -- favorable credit rating or not.

GovGuam tried and failed to sell a portion of the deficit financing bond five months ago, and court-appointed solid waste receiver Gershman, Brickner and Bratton has said the decision to link the two bond measures poses a "major risk" to the landfill financing.

Guam Economic Development Authority Administrator Tony Blaz yesterday said financial advisers believe there's interest in both bonds.

"We're very optimistic. I can't presume what's going to happen," he said.

Blaz said investor presentations are scheduled for next week, beginning with a presentation for the deficit financing bond. Both bonds will be priced early next month.

GovGuam faces a June 30 federal court deadline to secure solid waste financing, otherwise court-ordered million-dollar weekly deposits by GovGuam for those projects will resume, retroactive to April 15. The bond financing would be used to close Ordot dump and build a new landfill.

Standard & Poor's yesterday rated the $202.2 million solid waste bond at "BBB-" with a stable outlook, according to the company's Web site. That is the lowest investment grade credit rating, which means the lowest rating financial institutions will consider buying.

The company earlier this week rated the $275 million deficit financing bond at "B+" with a positive outlook. The bond would pay for delinquent tax refunds; court-ordered cost-of-living allowances for government retirees; delinquent retirement contributions for education and hospital employees; and infrastructure improvements at the hospital.

That rating is three grades below investment grade, which means, if sold, that bond likely will carry a higher interest rate than the landfill bond because of the increased risk to investors. The economic agency's financial adviser this week said the interest rate on the $275 million bond could be between 8 percent and 10 percent.

The repayment source for the two bonds is different.

The deficit financing bond would be repaid by the government's General Fund.

The solid waste bond would be repaid primarily through trash user fees, but would be backed by federal Section 30 funding received by GovGuam each year.

The solid waste receiver has supported linking Section 30 funding to the solid waste bonds to make them more likely to sell.

"We are very pleased that S&P agreed with our finance team's assessment of the Section 30 credit," Gov. Felix Camacho said yesterday in a written statement about the solid waste bond. "The investment-grade rating will open up an expanded universe of potential investors." According to the governor, increased demand for the solid waste bond could mean lower borrowing costs.

The administration still is waiting for word on a low-interest loan -- as low as 2 percent -- from the U.S. Department of Agriculture that could make it unnecessary to float bonds to build a new landfill. If the $150 million federal loan is secured, bond financing would be necessary only to close the dump, governor's chief of staff George Bamba has said.

Guam expects to hear the USDA's decision in early June because the federal agency must act on funding requests by June 30.

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