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Guam BPT bonds dropped to junk rating

Fitch Ratings has downgraded the rating on the government of Guam’s $763.315 million Business Privilege Tax (BPT) revenue bonds from A- to BB.

“The downgrade is based on Fitch's assessment that the BPT bond security can no longer be rated distinct from the general operations of the Government of Guam following the passage of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA),” Fitch said in its Dec. 23 report.

While PROMESA does not apply to the Government of Guam, Fitch said the law has created an avenue for the federal government to adopt future legislation allowing for a restructuring of Guam-backed debt even though Guam is not eligible to file for bankruptcy under current federal law.

Fitch noted the growth prospects for revenues are solid given ongoing growth in an economy that did not experience the most recent U.S. recession and which is expected to benefit from an expansion of the U.S. military presence. Guam has no legal limitations on its independent ability to raise revenues.

However, Fitch observed that Guam’s “very long trend of weak financial operations and high debt levels,” hence the BB (issuer default) rating.

Fitch noted that Guam’s long-term liabilities are “exceptionally high,”— $1.4 billion as of Oct. 31, 2016 or 65 percent of estimated personal income— reflecting both sizable outstanding debt obligations and the unfunded pension liability for the closed defined benefit plan.

“While Guam's economy is more diverse than that of other territories, and continues to experience growth in its economy and revenues, it has been unable to reach and sustain a structurally balanced budget,” Fitch said.

Based on Guam’s unchanging position, the Calvo administration requested the ratings be withdrawn.

“Fiscal discipline has been a hallmark of my administration,” Gov. Eddie Calvo said. (The Times News Staff)

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