The U.S. Virgin Islands has called off efforts to sell its rum-tax collections to bondholders, extending the struggling territory’s long banishment from credit markets, WSJ Pro Bankruptcy reported. Gov. Albert Bryan said that the territory had suspended a proposal to sell nearly $1 billion in securitization bonds, dashing for now his ambitions to generate some short-term fiscal relief for the cash-strapped government. The Virgin Islands had offered a suite of safeguards to entice investors to lend, promising them a stronger claim on rum-tax revenues and legal protections from a potential government bankruptcy. Market conditions for municipal borrowers could hardly be frothier, offering the territory a golden opportunity to refinance a big chunk of public debt at lower interest rates. Gov. Bryan blamed a lawsuit filed by public retirees and certain legislative amendments for impeding the offering ahead of a Tuesday deadline. Pulling the deal — a relative rarity in the municipal market — marks another financial setback for the Virgin Islands, which faces challenges more severe in some respects than its larger Caribbean neighbor Puerto Rico. “Buyers likely just wanted more yield than the transaction could tolerate and still be effective,” said Matt Fabian, partner at Municipal Market Analytics. The offering was structured to push back $255 million in scheduled interest payments over the next three years into the 2030s, freeing up funds for elected leaders to spend on other pressing needs. Gov. Bryan had suggested using the savings to shore up the territory’s public pension system, one of the worst-funded in the U.S. Without a cash infusion, the territory’s Government Employees’ Retirement System has projected it will have to slash benefits for roughly 8,700 retirees by more than half as early as 2023. Like Puerto Rico, the Virgin islands is also contending with outdated infrastructure, a deeply indebted power monopoly and lingering aftereffects of the devastating 2017 hurricane season. Puerto Rico has been under bankruptcy protection since 2017 and isn’t paying much of its debt. Bankruptcy isn’t an option under U.S. law for the Virgin Islands, which has rejected suggestions of defaulting on its debt or seeking concessions from creditors.
