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The Honolulu Advertiser
Posted on: Tuesday, March 26, 2002

Guam credit rating cut after tourism losses

By Dennis Walters
Bloomberg News Service

NEW YORK — Guam's credit rating was cut two notches below the minimum investment-grade level by Standard & Poor's Corp., in part because of a drop in tourism after the September terrorist attacks.

S&P reduced the rating on Guam's general obligation bonds to "BB" from "BBB-." Lower ratings can make it more expensive for bond issuers to borrow in the future, and often reduce the value of existing bonds. Some investors also can't buy debt that is rated at "junk," or below investment-grade, levels.

"Guam's economy is very susceptible to events outside its control," including fewer visits by Japanese tourists last year and spending cuts at U.S. military installations on the island, Standard & Poor's said in a statement. Guam backs $440 million of general obligation and other debt, S&P said.

Guam, a U.S. territory about halfway across the world from New York and 1,500 miles southeast of Tokyo, is allowed to borrow in the tax-exempt U.S. municipal bond market. Guam, Puerto Rico and other U.S. territories sell debt with interest income exempt from all federal, state and local income taxes, making it attractive to investors.

Guam borrowed in the past to cover deficits of $130 million by the end of its fiscal year on Sept. 30, 2000, said S&P analyst Parry Young. Fiscal 2001 figures aren't available, but S&P said revenue is expected to drop.

"We were looking for them to take steps that reduced the accumulated deficit, and basically that hasn't happened," Young said.

He said tourism is a "key ingredient" helping drive about half of the island's private-sector jobs. Tourist visits dropped 10 percent last year, including a 40 percent year-over-year decline in the fourth quarter, after Sept. 11, Young said.

U.S. military employment on Guam also fell to about 6,000 last year, compared with 7,000 in 1996.