PFA to float $40 million in bonds for Cruzan treatment plant

The deal -- struck between the government of the Virgin Islands and Cruzan VIRIL -- was approved by the 28th Legislature in October and signed into law by Gov. John deJongh Jr. this month.

Under the contract, Cruzan VIRIL will produce all of its Cruzan, Ronrico and bulk rum to be sold in the U.S. on St. Croix for at least the next 30 years and the V.I. government will float bonds to fund the distillery's expansion. The bonds are backed by future rum tax revenues.

Tuesday, the PFA board authorized staff to issue up to $105 million in Cruzan Project Bonds: $30 million for a wastewater treatment facility at the Cruzan distillery and up to $75 million to expand the distillery's production capacities. Rum tax revenues will be used to repay the bonds.

PFA Director of Finance and Administration Julito Francis said that while the authorization is for $105 million, the first issuance will be for $40 million. That will pay for the wastewater facility and the initial expansion costs, he said.

The rest of the bonds will be issued down the line as needed, Francis said.

Government officials hope that by increasing the distillery's capacity -- currently capped because the Environmental Protection Agency has limited the amount of wastewater the distillery can discharge into coastal waters -- and helping to promote Cruzan, sales of local rum in the U.S. will bolster the territory's long-term financial stability.

The wastewater treatment plant financing will allow Cruzan to comply with the Territorial Pollutant Discharge Elimination System permit which will get rid of the infamous "brown stain" seen off the south shore of St. Croix.

Some PFA board members raised concerns about a bill proposed in the U.S. Congress, but the agency's bond counsel allayed fears that it will disrupt the bond sale.

There has been movement from Puerto Rico -- which recently lost rum giant Diageo to the Virgin Islands -- to limit the amount of rum tax revenues the territory would be able to use to subsidize the rum industry.

Pedro Pierluisi, Puerto Rico's non-voting member of Congress, introduced a bill in April which was assigned to the House of Representatives Ways and Means Committee. The proposed legislation would cap the subsidies that territories could provide to rum producers from rum excise tax rebates at 10 percent. Under both the Diageo and the Cruzan deal, the V.I. government uses well over 10 percent of its rum tax revenues in subsidies.

DeJongh dismissed the legislation's threat at Tuesday's meeting, saying that there is very little support for it in Congress.

"It's a terrible move by Puerto Rico to undermine our economic development," he said.

When locally produced rum is sold in the U.S., the federal government collects excise taxes -- and returns a major portion of those tax dollars to the territory.

Currently, for every proof gallon of Virgin Islands-produced rum sold in the U.S., the federal government collects $13.50 in taxes, of which $13.25 is returned to the territory.

The government's deal with Cruzan also continues the molasses subsidy and funding to market its brands -- both to be paid for through rum tax revenues -- and continues Cruzan's package of Economic Development Authority tax benefits.

At Tuesday's PFA meeting, Guy Logan of Citigroup -- the lead underwriter for the Cruzan Project Bonds -- said the Puerto Rico bill already has been disclosed to the bond rating agencies and it does not seem to be a major concern.

He said it looks like the bonds could be sold at a 6.3 percent interest rate, which is actually less than the bonds recently floated for the Diageo rum distillery project.

"We're hoping for a good reception on the market," Logan said.

Patricia Goins, the PFA's bond counsel, said the bonds will be priced on Dec. 8 and the closing is scheduled for Dec. 16.

- Contact reporter Aldeth Lewin at 774-8772 ext. 311 or e-mail alewin@dailynews.vi.

To see more of The Virgin Islands Daily News, or to subscribe to the newspaper,
go to http://www.virginislandsdailynews.com/. Copyright (c) 2009, The Virgin
Islands Daily News, St. Thomas Distributed by McClatchy-Tribune Information
Services. For reprints, email tmsreprints@permissionsgroup.com, call
800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The
Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

For full details on (PBFNF) PBFNF. (PBFNF) has Short Term PowerRatings at TradingMarkets. Details on (PBFNF) Short Term PowerRatings is available at This Link.