Adelup successfully sells Layon bonds; Guam offering oversubscribed and ‘extremely well-received’; Governor asks senators to maintain 5 percent BPT

Governor Lou Leon Guerrero and members of her Fiscal Discipline Team meet with credit rating agencies in San Francisco for a bond rating presentation on a financing plan for the construction of a new cell at Layon Landfill. From left: Deputy Chief-of-Staff Jon Junior Calvo, Bureau of Budget Management and Research Director Lester Carlson, Guam Economic Development Authority (GEDA) Administrator Melanie Mendiola, Governor Lou Leon Guerrero, GEDA Public Finance Manager Christina Garcia, GEDA Deputy Administrator Artemio "Ricky" Hernandez, and Department of Administration Director Edward Birn.

The government of Guam has successfully sold its general obligation bonds to fund the much-needed new trash cell at the Layon Landfill.

According to the governor’s fiscal team, Guam’s offering was “extremely well-received” in the market despite the heavy volume of trading when the Guam bonds were floated.

The proceeds of the bonds will be used to fund $30 million in project costs payable over a 12-year period.

Because of the good market reception to Guam’s bond offering, initial interest rates were reduced by 25 basis points and the bonds sold at a true interest rate of 3.25 percent.

This ultimately reduced total debt service by approximately $1 million from the initial offering terms.

According to the fiscal team, the offer was oversubscribed by 12.9 times, which means that the demand for the bonds far outstripped the supply.

Reacting to the news, Gov. Lou Leon Guerrero told the Patti Arroyo show on NewsTalk K-57 that the interest rate that the Guam bonds got was a really good rate considering the rising interest rate environment.

“I would like to congratulate our fiscal team for a job well done. I am very proud of our fiscal team, they really did a good job,” the governor said.

With the sale, current pricing reduces Guam’s annual debt service to $2.998 million for this borrowing from $3.155 million contained in the original financial projections filed with the District Court, representing an annual savings of approximately $157,000.

Bureau of Budget Management and Research Director Lester Carlson was also on the Patti Arroyo show, saying that 23 firms participated in the sale of the Guam bonds and of these, 10 firms placed orders for the entire bond issue, including nine with whom the fiscal discipline team spoke directly with prior to the sale.

“We made, I think, 17 calls to answer questions from buyers. As a result, the buyers were convinced and although we initially entered at a 3.5 percent interest, we eventually got a true interest rate of 3.25 percent,” Carlson said.

According to the governor, the good reception given to Guam’s bond offering demonstrates the confidence investors have in her administration and Adelup’s commitment to fiscal discipline, including the maintenance of the current business privilege tax.

The governor was referring to the rise in business privilege tax to 5 percent from 4 percent. The increase was carried out in 2018 by the previous legislature and has since been opposed by the business community. Only yesterday, prominent members of the business community testified in favor of a bill rolling back the tax.

According to the governor, the 5 percent tax was important in convincing investors to buy Guam’s Layon bonds.

“It is important to note that recognition of the strong legislative will to maintain the BPT at 5 percent was an important focus of many of the discussions with investors. The fiscal discipline team was able to achieve an outstanding result for the financing of the new landfill cell at the lowest possible cost,” the governor said.

Last June, the governor and members of her fiscal discipline team met with credit rating agencies in San Francisco for a bond rating presentation. According to the governor, the crucial element in the meeting was that the rating agencies were focused on GovGuam maintaining the 5 percent business privilege tax.

“For this reason, I’m asking the senators to consider this and vote to maintain the 5 percent business privilege tax,” the governor said, referring to Sen. James Moylan’s Bill 9-35, which seeks to roll back the BPT to 4 percent. The measure had a public hearing Tuesday and may be voted upon in the next legislative session.

“And I believe the members of our business community are reasonable and they will realize the importance of this,” the governor added.