(S&P Global Ratings) – S&P Global Ratings has revised its outlook on the Government of Guam (GovGuam) to negative from stable.
The rating agency has also affirmed its ‘BB-‘ rating on the territory’s general obligation (GO) bonds outstanding and its ‘B+’ rating on Guam’s appropriation-backed certificates of participation (COPs).
S&P Global Ratings has also revised its outlook to negative from stable and affirmed its ‘BB’ long-term rating on the Guam Education Financing Foundation’s (GEFF) series 2016A COPs.
“The outlook revision reflects significantly declining tourism activity due to health and safety risks posed by the COVID-19 pandemic,” said S&P Global Ratings credit analyst Timothy Little. S&P Global Ratings considers health and safety a social risk under our view of environmental, social, and governance (ESG) factors. There is a one-in-three chance we may lower the rating over the next two years.
As the COVID-19 pandemic persists and the social risk from the spread of the virus grows, the implications for the tourism, leisure, and hospitality sectors have been acute and dramatic.
Restrictions on travel and consumer activity globally–driven by social distancing and stay-at-home orders intended to flatten the curve and slow the viral infection rate–have led to hotel booking cancellations and deferrals, convention and conference cancellations, and the widespread closure of bars and restaurants. Although the closure decisions are prudent, in our opinion, the health and safety aspect of this action in the near term will materially affect the territory’s economy.
The outlook revision on the GovGuam’s general creditworthiness affects the following revenue bonds rated our “Priority-Lien Tax Revenue Debt” (published Oct. 22, 2018 on RatingsDirect) criteria, which factors in both the strength and stability of the pledged revenues, as well as the general creditworthiness of the territory as issuing obligor. The priority-lien rating on the bonds is limited to one notch above our view of the GovGuam’s creditworthiness (GO rating: ‘BB-/Negative’) and is constrained from going higher unless there is an improvement in the government’s GO rating.
We have revised the outlook to negative from stable and affirmed our ‘BB’ long-term ratings on the territory’s:
*Series 2011A hotel occupancy tax (HOT) revenue bonds based on our priority-lien tax revenue debt criteria. The government had $77.6 million of HOT bonds outstanding as of Sept. 30, 2018.
*Series 2016A limited obligation (Section 30) bonds based on our priority-lien tax revenue debt criteria. The government had $232.6 million of Section 30 bonds outstanding as of Sept. 30, 2018.
*Series 2011A, 2012B, and 2015D business privilege tax (BPT) based on our priority-lien tax revenue debt criteria. The government had $742.9 million of BPT bonds outstanding as of Sept. 30, 2018.
*On its GO bonds, the GovGuam has pledged its full faith and credit for the punctual payment of principal and interest. The government had $27 million of GO bonds outstanding as of Dec. 31, 2019.
