Guam expects to sell speculative rated bond this year

Guam, which currently carries speculative-grade ratings, plans to sell general obligation bonds this year.

The proceeds of the GOs, for which an amount hasn’t been determined, will be used to build a high school in Yigo, in the northern tip of the territory. The school will replace an existing high school, said Lester Carlson, director of the Guam Bureau of Budget and Management Research.

Carlson said he expects the bond to be sold competitively, but had no details on the size of the bond or the sale date. “Plans for the issuance of an invitation to bid are in the final stages of preparation,” he said.

Guam’s GOs are rated Ba1 from Moody’s Investors Service and BB-minus from S&P Global Ratings.

Guam last sold GOs, subject to the alternate minimum tax, in October 2019. On Oct. 20, 2022, there was a block-sized trade of the bonds at a 5.477% yield. The bonds mature in November 2031.

Guam’s central government last sold bonds in May 2021, when it sold $283 million in business privilege tax refunding bonds.

In April 2022, the Guam Power Authority sold $252 million revenue refunding bonds with serial maturities from 2022 to 2044, callable in 2032. The 2044 maturity sold with a 4.15% interest rate.

In explaining its rating in May 2021, Moody’s pointed to the island’s small and highly tourism-dependent economy, strong debt service coverage, and solid governance structure.

However, Moody’s Analyst Pisei Chea and Senior Vice President Ken Kurtz also said the island’s rating was 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.”

In its December 2021 rating, S&P said Guam’s lack of budget reserves and a drastic fall-off of tourism due to the COVID-19 pandemic were concerns. It said the island’s continued construction and military activity were positives.

In September 2022, Guam’s government approved a fiscal year 2023 general fund budget 14.4% larger than the one for fiscal 2022 (the fiscal year starts Oct. 1). Revenues came in 10% above projections in the first 10 months of fiscal 2022.