US Virgin Islands Facing Cash Crunch
The US Virgin Islands lurches closer and closer to joining Puerto Rico in bankruptcy:
Now the borrowing window has slammed shut. Trouble in neighboring Puerto Rico, which recently filed for a form of bankruptcy after a string of debt defaults, has investors worried that the U.S. Virgin Islands might be next.
With just over 100,000 inhabitants, the protectorate now owes north of $2 billion to bondholders and creditors. That’s the biggest per capita debt load of any U.S. territory or state – more than $19,000 for every man, woman and child scattered across the island chain of St. Croix, St. Thomas and St. John. The territory is on the hook for billions more in unfunded pension and healthcare obligations.
“We have a government that we can’t afford, and now all of it is converging,” said Holland Redfield, a former six-term U.S. Virgin Islands senator who hosts a radio talk show about politics in the territory. “We’re getting to the point where we may have a potential meltdown.”
Ratings agencies have downgraded the islands’ credit ratings deep into junk territory. With the U.S. Virgin Islands shut out of the credit markets after a failed January bond issue, officials are scrambling to stabilize its finances after years of taking on debt to plug yawning budget holes.
But how these islands will recover from years of budget deficits and a severe liquidity crisis remains to be seen. The territory lost its single-largest private employer five years ago when a refinery shut down. Gross domestic product has declined by almost one-third since 2008. At times this year the government was operating with just two days’ cash on hand.
Locals live with pitted roads, crumbling schools, electricity outages and deteriorating medical care.
The Virgin Islands Water and Power Authority did finally find someone who would lend to them… a private equity fund which specializes in distressed municipal securities. The interest rate on the bond is eleven percent.
There’s a lot more at the Reuters link. This is a US territory, not a third world country… and yet, it might as well be a third world country.