Standard & Poor's: U.S. Virgin Islands needs cash urgently
Thursday, March 02 2017 @ 01:05 PM AST
Contributed by: AleemKhan
SUMMARY OF WHAT S&P SAID ABOUT THE UNITED STATES VIRGIN ISLANDS:
* U.S. Caribbean territory needs cash injection urgently
* USVI toting US$110 million current deficit
* Downgrade imminent
S&P'S FULL RELEASE YESTERDAY:
S&P Global Ratings placed its 'B' rating on the Virgin Islands Public Finance Authority's matching fund loan notes, senior- and subordinate-lien bonds, issued for the U.S. Virgin Islands (USVI), on Credit Watch with negative implications. At the same time, S&P Global Ratings placed its 'B-' rating on the authority's gross receipts tax bonds on Credit Watch with negative implications.
The Credit Watch placement follows USVI's growing liquidity challenges. "The territory indicated that it currently holds approximately two days' cash on hand and may not have sufficient cash to meet obligations including pay-roll obligations due in March without additional external liquidity or significant budget cuts," said S&P Global Ratings credit analyst Oladunni Ososami. "In the past month, the territory's liquidity has been below 10 days' cash, which we believe leaves USVI vulnerable to cash flow insolvency."
Given the urgency of the territory's liquidity issues, the territory will need an infusion of cash to continue to pay its operating expenses. We understand that the territory's access to external liquidity to deal with immediate cash flow needs remains contingent on USVI enacting its proposed revenue enhancements outlined in the governor's five-year financial plan to close its US$110 million current deficit. The enactment of the measures depends on legislative approval, which has been delayed in the past and remains uncertain.
Although the proposals are expected to go through the final legislative approval on Feb. 28, it is not certain that the proposals will be approved or that approval will lead to timely access of cash flow needed to address the current liquidity crisis.
If the territory does not take definitive action to address its current fiscal position and we view its capacity or willingness to pay debt service on the bonds as increasingly compromised, it could lead to further deterioration of the credit quality.