The U.S. Virgin Islands is racing to sell its rum-tax collections to bondholders ahead of expected interest-rate hikes, pitching an $890 million debt refinancing as the answer to a government pension system’s looming insolvency, WSJ Pro Bankruptcy reported. The Virgin Islands legislature said that it approved the planned refinancing on Monday, clearing the way for a proposed deal to refinance outstanding rum-tax bonds maturing over the next two decades with new securitization debt. Refinancing will free up short-term money to avoid threatened cutbacks to retiree pensions, lawmakers said. Surplus rum-tax revenues would also be dedicated to the U.S. territory’s public pension system, providing it a long-term funding source, according to the authorizing legislation. Gov. Albert Bryan Jr.’s administration had tried and failed to complete a similar deal in 2020, canceling it after a legal challenge and legislative amendments. The Virgin Islands is betting that investors will take part in the new deal because it would tighten their grip on rum-tax revenue while protecting them from the risk of a possible future government bankruptcy. The Virgin Islands faces stiff financial challenges, with its bonds rated as junk, its public pensions underfunded by $5.78 billion as of 2020 and its population declining.
