Moody's Investors Service did not downgrade the CNMI's B2 rating for its Series 2003A General Obligation Bonds involving $1.7 million in rated bonds outstanding-welcome news for the CNMI government that is faced with troubled pension and health systems, high utility costs, and the threat of a partial government shutdown.
Moody's removed from review and “confirmed” the B2 rating on this general obligation bond on Tuesday.
Lt. Gov. Eloy S. Inos said yesterday the bond rating review starting in May had to do with the CNMI's financial and economic conditions and data, but this information has since been submitted.
“We've never defaulted on any payment on the bond payment from day one. We also made sure those payments are made on time,” Inos said in an interview on Capital Hill yesterday morning.
Inos, a former Finance secretary, also said the $1.7 million in rated bonds will be paid off next year.
“Keep in mind that the rating that Moody's [reviewed] is only with respect to a balance of some outstanding bond payment of $1.7 million. It's not the entire CNMI outstanding obligation,” he added.
The bond rating that Moody's reviewed is the CNMI's $40 million bond in 2003 for land compensation claims and was refunded in 2007. Only $1.7 million of that is outstanding.
Moody's placed the rating on review on May 4 due to the lack of sufficient current financial and operating information.
Since that time, Moody's has received audited financial results for fiscal year 2010, unaudited financial information for 2011, and budget information for 2012 and 2013.
“The B2 rating reflects the Commonwealth's small, concentrated economy which has experienced a significant decline due to the loss of the garment industry; strained financial results characterized by persistent operating deficits; and a large and growing unfunded pension liability. Also factored into the rating are weaknesses in financial reporting exhibited by delayed release of audited financial statements,” Moody's said in its five-page rating update.
Moody's listed three strengths, including low debt levels compared to other U.S. territories and commonwealths.
It said rated debt matures in October 2013.
Lastly, after severe declines driven by the loss of the garment industry, the economy and government revenues show signs of stabilization.
A U.S. Bureau of Economic Analysis report last week showed that the CNMI's gross domestic product grew by 2.3 percent in 2010, after declining for six consecutive years.
Moody's also cited four “challenges.” These include financial results that show persistent CNMI general fund operating deficits and a large accumulated general fund balance sheet deficit.
“Financial reporting is weak,” Moody's said.
It added that “no plans are in place to address a large unfunded pension liability” and that the “small economy is dominated by volatile tourism industry.”
Inos said the recent enactment of a pension recovery law will help change the financial landscape.
“But until the dust settles down, we don't expect to see any major turnaround in the rating,” he said.
A downgrade of the CNMI's bond rating would mean that the Commonwealth would have more difficulty issuing bonds, such as a pension obligation bond that the Fitial administration and some lawmakers have been advocating to help pay for the government's outstanding employer contributions to the NMI Retirement Fund.