Virgin Islands to again attempt $1B bond refunding

The U.S. Virgin Islands’ government is looking into refunding $1 billion of its matching fund bonds to address underfunding of its pension system.

“There is a compelling argument for acting on this fourth attempt to pursue another Matching Fund securitization as interest rates remain not far off of historic lows and credit spreads remain relatively favorable for high-yield bonds,” said Nathan Simmonds, USVI Public Finance Authority director of finance and administration.

When the USVI attempted to refund $1 billion of the bonds in September 2020, it found that it would have had to pay 4.48% for a bond that would paid through 2039. As the Senate had put a 3.75% cap on interest, Gov. Albert Bryan Jr. had to withdraw the bond.

The bond refunding is being presented as a way to address the underfunding of the island’s pension liability. In October, Moody’s Investors Service estimated an adjusted net pension liability of $3.3 billion as of fiscal 2019.

Concerning the proposed refunding Bryan said, “this proposal will permanently resolve the untenable state of the [Government Employees Retirement System] unfunded liability.”

The governor met virtually with members of the Public Finance Authority board on Wednesday. He told them he had been working with members of the legislature on the bond refunding proposal.

Unless there is an unexpected infusion of cash or reduction of benefits before fiscal 2024, Moody’s projects the Government Employees Retirement System will run out of money in that fiscal year, which starts Sept. 1, 2023.

As of April 1, 2019, the USVI had $716 million of general obligation debt, most of it in bonds. It also had $1.04 billion of matching fund bond debt. The figures are from the approved fiscal 2020 budget. They exclude the debt of the Water and Power Authority. Moody’s rates the senior tranches of the bond Caa2 and the subordinate tranches Caa3.

Squire Patton Boggs is providing the Bryan government legal advice on the possible refunding.