Moody’s assigns Baa2 to Guam Waterworks’ Series 2020B revenue bonds

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(MOODY’S) – Moody’s Investors Service has assigned a Baa2 rating to the Guam Waterworks Authority’s (GWA’s) planned issuance of $167 million Water and Wastewater System Revenue Refunding Bonds, Series 2020B (Federally Taxable).

Following the issuance of the Series 2020B bonds, GWA will have approximately $645 million revenue bonds outstanding, all rated Baa2. The outlook is negative.

The Baa2 rating on GWA’s revenue bonds incorporates the inherent linkages between the authority and the general credit quality of the Government of Guam (Ba1 negative), the water and wastewater enterprise’s trend of sustained strong financial performance and coverage due to steady rate increases, and a track record of addressing outstanding regulatory issues.

At the same time, the rating also incorporates the vulnerability of system finances to volatile energy costs, above-average debt levels, uncertainty regarding the timing and cost of future regulatory requirements, and the territory’s small and concentrated economy.

The rating incorporates the economic and financial challenges facing the government and GWA as a result of a significant decline in tourism driven by the coronavirus pandemic. We expect that these challenges will be manageable in the near term due to the substantial assistance the territory is expected to receive from the federal government and the continuation of significant military construction activity in the territory.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and financial market declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

RATING OUTLOOK

The negative outlook reflects the risks that the recovery of Guam’s important tourism sector will be later and slower than currently expected and that federal assistance may be less than anticipated, placing pressure on the government’s and the authority’s finances and liquidity.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING

  • A continued trend of strong financial performance coupled with an improvement in the general credit quality of the Government of Guam.

  • Significant growth and diversification of the Guam economy.

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING

  • Financial results that fall short of current projections.

  • New regulatory requirements that increase system capital needs and debt levels.

  • Deterioration of the general credit quality of the Government of Guam.

LEGAL SECURITY

GWA’s revenue bonds are secured by net revenues of its water and wastewater enterprise.

USE OF PROCEEDS

Proceeds of the Series 2020B bonds will be used to refund outstanding revenue bonds for debt service savings.

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