March 16, 2018
Hagåtña — Moody’s has changed the outlook for Guam Power Authority’s senior lien revenue bonds ratings from stable to negative.
This latest change follows a similar change for Guam Waterworks Authority bonds and for the Government of Guam’s issuer rating. Additionally, S&P last week, noted that Guam’s General Obligations bonds and certificates of participation.
Both agencies expressed concern regarding the federal Tax Cuts and Jobs Act, resulting in a $67 million reduction in revenue for the remainder of the fiscal year, which ends in September.
What caused the change?
According to Moody’s:
“The change in the rating outlook to negative reflects Moody’s assessment of the linkage between GPA and the financial health and stability of the Government of Guam.”
“While GPA operates fairly independently from the government, we expect that the authority would not be able to disconnect itself from the local economic conditions or material financial stress at the government level. Until now, the government has remained current on paying its bills and there has been no pressure to receive transfers from GPA. The government of Guam represented around 15% of GPA’s fiscal year 2017 electric revenue. A deterioration of government finances or local economic conditions could put pressure on outstanding receivables and customers’ ability to pay their bills. In addition, the Public Utility Commission’s willingness to support rate increases could weaken during time of economic stress. The levelized energy adjustment clause (LEAC) rate, which accounts for the volatility of fuel costs, was recently increased in February 2018.”
Is this a rating downgrade?
How do we fix this?
We need to show financial stability; this is something that could have been avoided had the shortfall been addressed following the change in tax policy.
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