News Column

Bloomberg: Guam's Finances Trend Upward, Puerto Rico's Downward

February 27, 2014



HAGATNA, Guam, Feb. 27 - The office of the Governor of Guam issued the following news release:

A release from the Governor's Office w Contact Phillip Leon Guerrero at 929-7467 or Phillip.LeonGuerrero@Guam.gov

"Guamanians can be confident we headed in the right direction, and this article proves it. While other territories are sliding down the financial market, Guam continues to do well--outperforming other territories and competing well with big states. This administration worked hard to eliminate the deficit, create a surplus, and remain committed to transparency. Our efforts have been rewarded with more praise from the financial markets in New York."

- Governor Eddie Baza Calvo

Guam shines on the world-wide stage, again

Guam received worldwide recognition from Bloomberg, the leader in global business and financial information today. The article stated that Guam's General Obligation (GOB's) bonds are trading significantly better than Puerto Rico's GOB's despite Puerto Rico GOB's having a higher S&P rating, a clear sign that investors understand and recognize all of the improvements the Calvo Administration has made.

While S&P dropped Puerto Rico on Feb. 4 to BB+, one step below investment grade, the New York-based company raised Guam four months ago to BB-, the highest since 2003. This upgrade was also done during the first downgrade for the federal government in U.S. history.

Praise directly related to Calvo's efforts on deficit, financial transparency

This improvement and confidence is a direct result of Governor Calvo's fiscal team eliminating a $336 million deficit at the start of Fiscal Year 2011 and turning it into a $30 million general-fund surplus at the end of FY2012.

The Bloomberg report states GovGuam's finances have improved substantially in comparison to other U.S. territories -- U.S. Virgin Island and Puerto Rico. GovGuam continues moving forward in a profitable direction as indicated in the Comprehensive Annual Financial Report for Guam.

"Guam's bonds are beating the entire municipal market in 2014 for the fifth time in six years," the Bloomberg article states.

Bond investors confident in island's economy, administration

Guy Davidson, director of municipal bonds at AllianceBernstein Holding LP in New York mentioned in the Bloomberg article that Guam's debt "is small enough and the problems in Puerto Rico are distinct enough that investors haven't fled territory debt broadly." According to Guam Economic Development Authority's (GEDA) records AllianceBernstein holds Guam General Obligation Bonds, Guam's Business Privilege Tax Bonds, Guam's Section 30 Bonds, Guam Waterworks Revenue Bonds and Guam Power Authority Revenue Bonds.

"Guam and the Virgin Islands are rated lower, yet in some cases we have seen paper from those other U.S. territories trading well through Puerto Rico," said Chad Farrington, head of muni research in Boston at Columbia Management Investment Advisors in the article. Similar to AllianceBernstein, Columbia Management also holds several Guam credits which include Guam's Business Privilege Tax Bonds, Guam Power Authority Revenue Bonds and Guam's Section 30 Bonds.

Last year, GovGuam's debt declined 4 percent compared to Puerto Rico's 20 percent plunge.

According to a British universal investment banking institution, Barclays Plc, Guam's bonds leads with a 3 percent increase this year in correlation to an overall increase of 2.5 percent for the whole market. Puerto Rico however, surged up to 5.2 percent in 2014.

"This level of diversity in Guam's bonds is truly indicative of the faith the investor community has in Guam and in Guam's future," according to Henry Taitano, GEDA's Administrator.

DOA division awarded Certificate of Achievement

Earlier this month the Government Finance Officers Association awarded the Certificate of Achievement for Excellence in Financial Reporting to the Department of Administration, Division of Accounts. The Certificate of Achievement is the highest form of recognition for government accounting and financial reporting. This honor was awarded to DOA for their completion of CAFR for fiscal year 2012. This award represents a significant accomplishment by a government and its management.

The Bloomberg article also credited this achievement to the confidence shown in the New York market.

"It shows that the financial information they produced is high-quality, and it can be relied on. It's really hard work, especially for the first time," Jeffery Esser, GFOA's executive director said.

Today, Guam and Puerto Rico substantially different in financial world

"The similarities between Guam and Puerto Rico end with the fact that they're both territories. Guam isn't just automatically lumped in with Puerto Rico. We have stable and positive outlook trends," Henry Taitano GEDA Administrator said. GEDA oversees all Guam debt issuance.

According to the Bloomberg article, "Debt from Guam's power, waterworks, airport and education- financing authorities carry investment grades from S&P. The island's highest-rated bonds are backed by revenue from taxing goods, services and property sales. The debt is ranked A by S&P, sixth-highest. That's the same level as California's general-obligation bonds."

A portion of the Guam tax-backed bonds maturing in January 2042 traded yesterday at an average of 101.2 cents on the dollar to yield 4.94 percent, Bloomberg data show. That's about 1.06 percentage points above benchmark munis.

"The telling of the 'Guam story' does result in lower yields and cost savings when we do enter the market." according to Taitano.

To view the article in its entirety, click the link below:

http://www.bloomberg.com/news/print/2014-02-26/guam-rally-on-fiscal-gains-defies-puerto-rico-cuts-muni-credit.html

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Source: Targeted News Service


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