Dec. 23, 2016, (Hagåtña) — Puerto Rico’s financial problems caused Fitch Ratings to downgrade the Government of Guam’s outstanding Business Privilege Tax (BPT) bonds from A- to BB.
The rating had nothing to do with a change in Guam’s credit strength or any factor within Guam’s control. It was prompted entirely by the federal Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), which President Obama signed into law on June 30, 2016. Following the passage of the new law, Fitch announced its intent to re-evaluate the BPT rating it designated for Guam.
Governor Calvo, the Guam Economic Development Authority, and the fiscal team met with Fitch on two separate occasions. They presented Guam’s case to educate Fitch on PROMESA’s lack of applicability to Guam, and to assure Fitch that Guam has no intent or desire ever to lobby Congress for debt restructuring authority.
Fitch stated that despite Guam’s strong economy, growing revenues, and strong economic outlook, they are concerned with the Government’s inability to sustain a structural balance and high liability burden. Based on their unchanging position, the administration requested the ratings be withdrawn.
“Fiscal discipline has been a hallmark of my administration,” Governor Calvo has made clear. In fact, earlier draft versions of PROMESA during Congressional deliberation included language that would have allowed Guam to opt in to PROMESA. However, this language was stricken from the final bill, a move Governor Calvo supported.
Facts about PROMESA & Guam:
- PROMESA allows Puerto Rico to restructure its debt and effectively avail itself of bankruptcy protection, a power it previously lacked.
- The key provisions of PROMESA specifically apply only to Puerto Rico and not to Guam. Further Congressional action or federal court rulings would be required to enable Guam to have similar powers as Puerto Rico.
- The rating change does not impact the cost of Guam’s outstanding debt, since all of that debt was prudently issued at very low fixed rates. Guam does not intend to seek Fitch ratings on future BPT financings, so the effect on future financing will be minimal.
- The fact that Congress actually demonstrated the willingness to alter federal law to allow a U.S. territory to restructure its debt caused Fitch to reevaluate the stand-alone strength of the BPT credit.
10 Ratings Upgrades in 6 years
In the wake of PROMESA, on July 11, 2016, Standard & Poors Global, the other rating agency to rate the BPT credit, affirmed it’s A rating on the BPT bonds. Standard & Poors will not be changing its rating. The rating agency has the longest history with and deepest understanding of Guam and has recognized the strength and integrity of the BPT and, in doing so, also recognized the narrow application of PROMESA in its current form only to Puerto Rico.
Since Governor Calvo assumed office in January 2011, Guam and its agencies have been upgraded by rating agencies a total of 10 times, which has resulted in record low financing rates and millions of dollars in savings for Guamanians. This recent BPT action by Fitch is the only downgrade of any of Guam credits during that time period, again due entirely to federal action.
This Administration and its fiscal team continue to work diligently to maintain sound finances, and have worked tirelessly for the last six years to ensure investor confidence in Guam, which in turn results in lower interest rates for the taxpayers of Guam.