S&P lets state keep AA- grade for bonds

By Dennis Walters
Bloomberg News Service

NEW YORK — Hawai'i sidestepped a lower credit rating on $3.4 billion of its general obligation bonds because tourism has rebounded from a slump after September's terrorist attacks, Standard & Poor's said.

The credit-rating company said in October it might lower the "AA-" grade on Hawai'i's bonds, citing canceled trips by tourists from the rest of the nation and abroad.

Tourism-related spending accounts for about one-quarter of Hawai'i's annual economic activity, and a drop in visitors can mean less tax revenue that is used to pay bondholders.

While the attacks "had an immediate and dramatic impact on Hawai'i's tourism," the state's overall visitor tally in 2001 ended "only" 9.1 percent lower than the record-setting 6.9 million the year before, Standard & Poor's said in a statement.

Hawai'i's visitor traffic plunged 34 percent in September, compared with the same month in 2000, triggering S&P's downgrade statement. The tourism decline narrowed to 16 percent in December compared with the same month a year earlier. That improvement and state spending cuts to protect cash reserves provided enough stability to avoid a downgrade, S&P said.

The drop in tourism also has affected other states and municipal bond issuers. Reduced revenue at airports prompted a review of their ratings by S&P and other rating companies.

Moody's Investors Service in December changed its outlook on Hawai'i to "negative," a step short of a downgrade alert.

Since the worst terrorist strike in U.S. history, the drop in air travel marked a reversal of fortune for Hawai'i. In July, Standard & Poor's had raised the state's rating, citing increased tourism and an economic rebound.

Hawai'i's unemployment rate, at 4.2 percent before the attacks, reached 5.7 percent in November — the highest level in 29 months — before dropping to 5.4 percent in December.

The state plans to sell almost $600 million of general obligation bonds this month.