NMI may have dodged a bond rating downgrade

Moody’s Investors Service announced on May 4 that it placed the bond rating under review and required the CNMI to provide sufficient current financial and operating information within 60 days. That 60-day period lapsed this week.

Gov. Benigno R. Fitial said Wednesday that if there was a downgrade he would know about it, but deferred questions about the bond rating review to Lt. Gov. Eloy S. Inos.

Press secretary Angel Demapan said yesterday that there has not been any advisory that a downgrade occurred or that it was averted.

He said the single audit report was issued right around the same time that the Moody’s announcement came out.

“Hence, the release of the single audit would provide the information that was considered lacking,” Demapan told Saipan Tribune.

That audit report, conducted by Deloitte under contract with the Office of the Public Auditor, said the CNMI government’s unreserved fund deficit ballooned by $36.1 million or 12 percent in a 12-month period, bringing the total to $336.9 million by the end of fiscal year 2010 compared to $300.8 million in fiscal year 2009.

The unreserved fund deficit of $336.9 million in fiscal year 2010 is much more than the government’s fiscal year 2012 budget of $102 million.

Moody’s said on May 4 that the placement of the rating on review “is prompted by the lack of sufficient current financial and operating information.”

“If the information is not obtained within the next 60 days, we will take appropriate rating action, which could include the withdrawal or lowering of the rating,” Moody’s said.

Inos said at the time that the administration has done “corrective actions” to avoid a downgrade.

A downgrade of the CNMI’s bond rating would mean that the Commonwealth would find it more difficult to issue bonds, such as a pension obligation bond that the Fitial administration and some lawmakers have been advocating to help pay for the government’s outstanding employer contributions to the NMI Retirement Fund, now at over $320 million.

Demapan said the CNMI, by way of its voters, may approve a pension obligation initiative.

“However, the initiative would only pave the way for the government to pursue a bond; it does not guarantee that such a bond would be approved. That would be something that would be determined when we get to that point,” he added.

Oscar Camacho, loan manager at the Commonwealth Development Authority, said yesterday he believes that the bond rating that Moody’s has reviewed may have been the CNMI’s $40 million bond in 2003 for land compensation claims and was refunded in 2007.

“Any downgrade would be hurtful. So we really need to be forthcoming in our reporting requirements,” he said.

Inos had said the issue of bond rating review is more about turning the economy around.

Demapan also said the review of the CNMI’s B2 bond rating was something expected given the recent publicity brought about by the Chapter 11 bankruptcy petition filed by the Fund.

The Fund was the first public pension agency on American soil to seek bankruptcy protection, but a federal judge later said he will dismiss it.