UOG submits independent analysis for bond

Guam - The Guam Economic Development Authority, the Governor's Office and members of the 31st Guam Legislature should now have a copy of a Financial and Cost Benefit Analysis mandated in the recent law authorizing the Governor of Guam to secure a bond to pay for past due obligations such as COLA and tax refunds.  

Here's a summary of the findings of the analysis:

*  A Limited Obligation Bond would likely have a higher rating and lower cost of issuing than  General Obligation bond.

* A Limited Obligation Bond would likely impact government of Guam's financial flexibility with potentially higher cash management impact on General Fund liquidity compared to a GO bond. However, steps could be taken to mitigate this liquidity impact.

* Both GO and LO bonds could potentially impact the bond markets by signaling a higher risk, which might result in higher interest rates and/ or lower credit ratings for existing and future bonds. However, this impact would be the same if  a GO bond were issued as it would be if a LO bond were issued. Hence, one bond would not have a greater impact than the other. 

* PL 31-76 restricts the interest rate on the issued bond to no higher than 6.5% per annum, which is likely to be achieved by a LO bond and less likely than a GO Bond given expected ratings differentials.

* A GO bond or LO Bond issue would require the effective, disciplined implementation of a credible fiscal stabilization plan which results in revenue growth. This is particularly important because the proposed bond will by for consumption and not investment.

The analysis was conducted by a team of financial and economic professionals from the University of Guam. They include:

David O'Brien (Chair)

Anita Borja Enriquez  (UOG)

Mark J. Heath, Metropolitan West Capital Management, LLC

Roseann M. Jones (UOG)

Leila C. Kabigting  (UOG)

David S. Okada (UOG)

John Onedera, Ernst and Young

Claret M. Ruane (UOG)

Edward G. Untalan, First Hawaiian Bank

The Analysis Team finds that a limited obligation bond secured by business privilege taxes is more favorable than a general obligation bond given financial and cost benefit considerations. The Analysis Team stated that it could not conclude that the issuance of a limited obligation bond is a credit negative due to the absence of concrete available data.

• REVIEW THE BOND ANALYSIS