Press Release|Public Finance
KBRA Revises Outlook to Negative for Matching Fund Special Purpose Securitization Corporation Matching Fund Securitization Bonds; Affirms BBB Rating
4 Apr 2025 | New York
KBRA affirms the long-term rating of BBB and revises the Outlook to Negative, from Stable, for the Matching Fund Special Purpose Securitization Corporation Matching Fund Securitization Bonds.
Key Credit Considerations
The rating action reflects the following key credit considerations:
Credit Positives
- The bonds are provided adequate coverage by the Matching Fund Receipts of about 1.83x MADS as of FY 2025.
- The combination of the Act, the bankruptcy remoteness of the Corporation, the Sale Agreement, and the Indenture provide the Bonds with a strong legal framework that KBRA believes will substantially insulate the pledged Matching Fund Receipts and the Corporation from the credit risk of the Virgin Islands.
- The ABT of 3.0x prevents the Corporation from diluting the cushion provided by the pledged revenues.
- The U.S. Treasury is expected to deposit the full amount of budgeted Matching Fund Receipts in a restricted account with the trustee prior to the start of each fiscal year.
Credit Challenges
- Pledged receipts have declined significantly over the last three years and remain vulnerable to changing U.S. consumer preferences for rum and/or the failure of one or more of the rum producers.
- The pledged revenues are not broad and diversified. They consist of rum sales from only two rum companies based in the Virgin Islands to U.S. consumers.
- Further, unlike the pledged Matching Fund Receipts, the ongoing payments to the rum companies funded from the Government’s Residual Certificate receipts are not bankruptcy remote introducing the risk that payments could be interrupted or delayed.
Rating Sensitivities
For Upgrade
- Reinstatement of the extended $13.25/gallon cover over rate accompanied by sustained stabilization or growth in rum sales resulting in improved MADS coverage.
For Downgrade
- Further deterioration in Matching Fund Receipts resulting in a further decline in MADS coverage.
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