Guam’s government is planning to sell $282.6 million of speculative grade bonds, most of them triple-tax-exempt and forward delivery the week of May 17.
Guam has released a preliminary official statement with an unspecified May pricing date, but Moody’s Investors Service said it believes the bonds will be priced May 19.
Citigroup and Barclays are head underwriters. Citigroup declined to provide a pricing date.
The sale will take the form of $258.2 million of Series 2021F tax-exempt forward delivery bonds and $24.4 million in Series 2021E federally taxable bonds. Both are Business Privilege Tax Refunding bonds.
Moody’s Investors Service has rated both bonds Ba1 with a stable outlook. While in September S&P Global Ratings rated the islands’ general obligation debt BB-minus, it does not rate the Business Privilege Tax Refunding bonds.
The taxable bonds will have a maturity in November 2026. The tax-exempt bonds will have serial maturities from 2026 to 2031 and then maturities in 2036 and 2042.
With the tax-exempt bonds the pricing will be done this month, but the cash will not be collected, and the bonds issued until an unspecified date of delivery. The first interest payment on the bonds would be July 1, 2022.
The tax-exempt bonds are to start paying interest on Nov. 15, 2021.
Forward delivery bonds have become more popular with the federal elimination of tax-exempt advanced refunding municipal bonds with issuers using the structure as another replacement for them.
In explaining its rating, Moody’s pointed to the island’s small and highly tourism-dependent economy, strong debt service coverage, and solid governance structure.
In a credit opinion issued Wednesday, Moody’s Analyst Pisei Chea and Senior Vice President Ken Kurtz said the island’s rating was also connected to “a significant, though improving, accumulated general fund deficit; debt levels that are notably above U.S. state medians, though below those of other territories; and a favorable pension funding situation.”
Guam’s tourism has been hit very hard by COVID-related travel limitations, but should be able to get through this period with approved federal aid and the continuation of federal military construction. It also has “above-average environmental exposures, especially typhoon risk and sea level rise.”
As of fiscal 2019, net tax-supported debt was 20.1% of gross domestic product. This compares to about 55.1% in Puerto Rico in 2017 but a 1.9% 50-state median in fiscal 2019.
The island’s adjusted net pension liability is 183.6% of its own source government fund revenue. This compares to an 80% 50-state median.
“The government ramped up employer contributions to the actuarially required contribution over a five-year period beginning in 2006-2007 and currently expects to fully fund the liability on actuarial basis by 2033,” Chea and Kurtz said.
However, the island has unfunded actuarial accrued liability of other post-employment benefits of $1.88 billion, which is greater than the GAAP based net pension liability of $1.18 billion. About 68% of OPEB liability is attributable to the general government with the rest associated with semi-autonomous entities.
The business privilege tax is a 5% tax paid by businesses and professionals on sales of goods, services, and tangible property. The bonds are supported by 3 percentage points (or 60%) of this tax.
The government of Gov. Lou Leon Guerreo and Lt. Gov. Josh Franquez Tenorio did not respond to requests for comment