Guam Makes News in the Financial World

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Guam – A story on Bloomberg boasts about Guam’s bright future while comparing our island to Puerto Rico on the bond market.
Another interview on Standard & Poor’s website says, unequivocally, “In our view, the current management team (Governor Calvo & his fiscal team) gives Guam its best chance in years to improve its credit.”

Both news items come on the heels of the fiscal team’s recent visit to financial agencies in New York. They are there for the sale of Guam Waterworks Authority’s bonds.

Bloomberg Article Says Guam Is a Place to Invest

The Bloomberg article starts: “Municipal investors looking for an escape from Puerto Rico, whose debt has lost the most since at least 2000, may find one almost halfway around the world in Guam.”

Here are more excerpts from the Bloomberg article:

Standard & Poor’s raised Guam one step to BB- last month, the highest since 2003 and three steps below investment grade. It cut Puerto Rico in March to one step above junk. The company cited Guam Governor Eddie Calvo’s steps to curb expenses while boosting transparency for investors.

“Guam hit bottom and had to put a structure in place to move forward,” said John Loffredo, co-head of Princeton, New Jersey-based MacKay Municipal Managers, which oversees $7.5 billion of local debt. “We like when an entity follows through on what they want to do. Guam has done that. They’re on the right path and they’re being rewarded.”

Upon taking office in January 2011, Calvo, a 52-year-old Republican and former PepsiCo Inc. executive, quashed raises for government workers and limited expenditures to 98 percent of revenue until the territory erases its deficit. 

 

Standard & Poors Gives Guam High Marks

Click on this link and look under the ‘VIDEO & AUDIO’ portion of the page. Click on the fourth item under ‘VIDEO & AUDIO’ and Standard & Poor’s weekly podcast called ‘Extra Credit’ will play. The host of the podcast highlights Guam’s recent positive performance in the financial markets by speaking with S&P officials familiar with the island, Paul Dyson, Mary Ellen Wriedt and Ted Chapman.

 

Here are some text excerpts from that podcast:

HOST: Historically, we’ve had Guam’s General Obligation Rating pretty deep in the non-investment grade category… Paul, it sounds like, even with volatility and cyclicality, it sounds like the economy of Guam is doing okay. Could you say what led to S&P’s recent [general obligation bonds] upgrade?

(NOTE: Guam’s GO bonds were upgraded to BB- from a B+ last month)

PAUL DYSON: Sure, over the past couple of years GovGuam has significantly improved its financial management practices, including stricter fiscal discipline, and improved cash flow monitoring. Guam has also generally realized positive trending revenue, positive cash flow, and success in containment of costs over the past couple of fiscal years. The combination of better financial management and better revenues has resulted in an improved liquidity position.

HOST: Why take this rating action now?

PAUL DYSON: Well, we took this action last month after we had time to thoroughly analyze the government’s Fiscal 2012 audited financial statements and estimated Fiscal ’13 results, which ended September 30th, and the upgrade also reflected what we believe are several positive economic trends emerging, including an improving tourism component. We believe this recent upgrade is likely sustainable.

Until very recently, Guam had a long history of rapidly increasing short term liabilities and payables. And that was caused basically by borrowing from its citizens in the form of delayed income tax refunds to balance its budget. And it even fell short of budgets that included generous revenue assumptions. Because of this the deficit grew larger and larger over the last 10 to 15 years, except more recently. In the last couple of years deficit financing has helped reduce Guam’s short term liabilities.

HOST: Is there further rating upside possible?

PAUL DYSON: In short, yes. But the question is, “How soon?” We do anticipate that tourism and the economy will likely improve in the next two years, which will definitely benefit Guam and provide it with opportunity to improve its financial position. In our view, the current management team gives Guam its best chance in years to improve its credit.”