Moody’s affirms Guam’s Baa3 rating, assigns same to new bonds

Investing.com -- Moody’s Ratings has affirmed the Government of Guam’s Baa3 issuer rating and assigned a Baa3 rating to the territory’s proposed $268.8 million Business Privilege Tax Refunding Bonds, Series 2025G, the rating agency announced Monday.

The outlook remains stable across all ratings, which include Guam’s General Obligation Bonds, Business Privilege Tax Bonds, Hotel Occupancy Tax Bonds, and Certificates of Participation.

According to Moody’s, Guam’s Baa3 rating reflects the territory’s improving financial position, with available fund balance reaching 17.6% of own-source revenue at the end of fiscal 2023. The rating agency expects this balance to continue growing through fiscal 2025.

The territory benefits from substantial federal government support and significant military construction activity, which provides stability to government finances and the local economy.

These strengths help offset several challenges facing Guam, including its small and concentrated economy that heavily depends on international tourism, very low resident income levels, weak demographic trends, and high long-term liabilities. The territory also faces environmental risks from typhoons and sea level rise, and continues to support underperforming enterprises, particularly the Guam Memorial Hospital.

Moody’s noted that Guam’s Business Privilege Tax bonds benefit from strong maximum annual debt service coverage of 4.5 times in fiscal 2024 (unaudited), while Hotel Occupancy Tax bonds show coverage of 5.6 times despite their narrower revenue pledge.

The stable outlook reflects Guam’s strong financial position and ongoing military construction that will support economic and revenue growth, even as tourism remains below half of pre-pandemic levels.

For a rating upgrade, Moody’s would look for significant growth in available fund balance closer to the 50-state median of about 40% of own-source revenue, improved governance, economic diversification, and reduced exposure to underperforming enterprises.

Conversely, a rating downgrade could occur if available fund balance falls below 10% of own-source revenue, if the territory returns to deficit financing, or if there’s a decline in Guam’s strategic importance to U.S. defense.

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