Gov. Albert Bryan Jr.’s much-touted debt refinancing effort, which sought to reap millions of dollars in savings over the next three years and prove a lifeline to the territory’s ailing pension system, has been suspended.
According to a Government House statement on Monday, the decision became necessary given the “negative impact of ill-intentioned litigation” filed in V.I. Superior Court on the eve of bond pricing and closing.
That litigation came from the Government Retirees United for Fairness, or GRUFF, and local government retiree Hugh Clarke. Both sought a temporary restraining order on the matter, claiming the legislation behind the debt refinancing plan was amended in violation of V.I. Code.
The complaint was dismissed on Sept. 24, but according to Government House, uncertainties produced by the litigation, as well as changes made to the ratifying legislation, “deprived us of the opportunity to successfully re-enter the [bond] market and close before the authorization’s sunset date on Sept. 29 as required by law.”
Senate Finance Chairman Kurt Vialet pushed back on this reasoning, and speculated that the governor’s financial team may simply not have found a good deal in the bond market.
“They couldn’t get the deal that they wanted,” Vialet told The Daily News.
The suspension marks a heavy blow to the Bryan administration, which, in the last few weeks, called the Senate into two special sessions to push through its debt refinancing legislation.
Approved and later encompassed in Act 8329 and Act 8330, the plan sought to refinance and restructure about $1 billion of bond debt secured by rum cover-over revenues that the Virgin Islands receives from the U.S. Treasury.
The plan would achieve this by creating a separate financial entity, or Special Purpose Vehicle (SPV), that would take full control of the cover-over monies. Being independent and untarnished by the V.I. government’s poor financial standing, the SPV would purportedly attract more investors in the bond market, use the rum cover-over monies as collateral and issue new bonds at lower interest rates, around 3.5% as opposed to the current 5.58-6.75%, as issued by the V.I. Public Finance Authority.
The new arrangement would supposedly reap $255 million in cash savings over the next three years and become a potential lifeline to the Government Employees’ Retirement System, which is barreling toward insolvency in two to three years.
Lawmakers were split over the measure, with many wary of turning over the territory’s coveted rum cover-over monies to a separate and unaccountable entity and fearful of a potential “dissavings” after the first 10 years of the refinancing.
Vialet, a vocal critic of the proposal, said the Senate put in a clause in the legislation that the interest rate cannot be more than 3.75% for the new bonds. He suggested the administration may have found this unattainable in the bond market.
“When they first came before the Legislature, they testified that this deal would allow an interest rate of 3.5% — I heard they got 4.48%,” he said.
The court complaint filed by GRUFF and Clarke claimed the Legislature’s decision to amend Bryan’s bill by adding such a clause violated the Revised Organic Act because lawmakers were altering Bryan’s bill and going beyond the special session’s specified purpose.
The defendants’ opposition to the complaint insisted the legislative amendments related to the subject matter for which the special sessions were called.
Bryan, in a statement on Monday, said while the V.I. government will continue to pay out millions of dollars toward its debt at full rate instead of taking in millions of dollars at reduced interest rates, he will work with “increased vigor” to develop alternative options to try to gain an equivalent amount of savings within a short time frame.
“As a cautionary note, the results may be on different terms and not as lucrative to our financial recovery,” he added.
Sen. Donna Frett-Gregory, who supported Bryan’s proposal, said she doesn’t believer the cancellation of the bond proposal is the end of the government’s ability to successfully go to market.
“It just means the governor and his team will have to work harder and that we have to work towards a more financially compliant and transparent government,” she said. “We are resilient people and I am certain there will be other opportunities in the very near future. What’s most important right now is that we all keep the solvency of the retirement system in the forefront of our agendas.”