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The following is a press release from Fitch Ratings: Fitch Ratings-New York-15 June 2010: Fitch Ratings assigns the following ratings to Virgin Islands Public Finance Authority (VIPFA) revenue bonds: --$308 million revenue bonds (Virgin Islands matching fund loan note) series 2010A (senior lien/working capital) 'BBB+'; --$88.3 million revenue bonds (Virgin Islands matching fund loan note) series 2010B (subordinate lien/working capital) 'BBB'. The bonds are expected to sell via negotiation the week of June 21. In addition, Fitch affirms the ratings on other matching fund revenue bonds of VIPFA as detailed at the end of this release. The Rating Outlook is Stable. RATING RATIONALE: --Matching funds are an established revenue stream based on federal law; payments made by the U.S. Treasury are transferred to escrow for payment of debt service on matching fund revenue bonds prior to being made available to the U.S. Virgin Islands (USVI) for other purposes. --Coverage has been solid over the last decade, benefiting from consumer trends in the U.S. market. Although the current offering represents additional leverage on the revenue stream, coverage is expected to be boosted by planned expansion of Cruzan production and completion of the Diageo facility over the next two years. --Payment on the bonds is ultimately dependent on ongoing rum production in the territory, which itself is tied to continuation of federal matching fund program, the availability of incentives and subsidies to producers from the USVI. --Future revenues may be affected by changes in consumer tastes or purchasing habits. --A debt service reserve is funded for each series at the lesser of maximum annual debt service, 10% of principal or 125% of average annual debt service. KEY RATING DRIVERS: --Uninterrupted rum production and continued U.S. support for the cover over program and the current USVI system of incentives. --Maintenance of sufficient coverage based on continuation of rum production. --On-schedule completion of the Diageo facility. SECURITY: Special, limited obligations of VIPFA payable from and secured by a pledge of and lien on the trust estate, primarily matching fund revenues. CREDIT SUMMARY: --The rating on the bonds is based on the strength of the revenue stream supporting bond payments, consisting of matching fund payments made annually by the U.S. government transferred to escrow for payment of debt service prior to being made available to the government of the USVI. --Offsetting factors include political risks, as well as longer term risks associated with consumer demand for rum products and ongoing production in the USVI. The Stable Outlook is based on the expected continuation of matching fund payments by the U.S. government. --Matching fund bonds are special, limited obligations of the PFA, issued periodically under a 1998 senior indenture (1998 indenture) under a senior and subordinate lien. The 'BBB+' rating on senior lien bonds and 'BBB' on subordinate lien bonds reflect the established nature of the matching fund revenue stream based on federal law and direct payment by the U.S. Treasury to escrow for debt service before any other purpose. These strengths are offset by the ultimate dependence of the revenues on production at a single USVI facility at present to distill rum for export, as well as exposure to longer-term changes in U.S. consumer demand for rum. A debt service reserve provides additional protection. --Matching funds have been paid annually to the USVI by the U.S. government since 1954 based on sales in the U.S. of USVI rum. Funds are paid at a base rate of $10.50 per proof gallon in place since 1954 and with periodic increases in recent years to $13.25 per proof gallon. The $13.25 rate expired Dec. 31, 2009, pending renewal by the U.S. Congress of the higher rate. Should the increase not be extended, the rate would remain at $10.50. The annual payment is calculated from projected sales of USVI-produced rum in the U.S. in the following fiscal year, adjusted by an amount reflecting the difference between estimated and actual sales two fiscal years prior. The bonds include a covenant that if matching fund revenues are replaced with another federal funding stream, the USVI will use its best efforts to use the substitute revenues for bond repayment. Coverage of debt service has been adequate, with fiscal 2009 coverage of outstanding senior lien bonds at 2.95 times (x) and aggregate coverage at 2.25x. Including the new bonds, coverage of senior lien MADS by 2009 actual revenues would be 1.69x, with aggregate 1998 indenture MADS coverage at 1.36x. The additional bonds test (ABT) for the 1998 indenture requires new issuance of senior or subordinate lien bonds to meet a three-year historical and two-year prospective MADS coverage test at 1.5x debt service for senior lien and 1.25x for subordinate lien after payment of senior lien debt service, and two-year prospective MADS coverage at 1.2x combined senior and subordinate liens. The current issue brings the senior lien to the 1.5x historical coverage test threshold. Future coverage is expected to grow substantially with completion of a new distillery by Diageo plc (rated 'A-' by Fitch, with a Stable Outlook) and expansion of the single, existing Cruzan-VIRIL distillery, owned by Fortune Brands (rated 'BBB-' by Fitch, with a Stable Outlook). To finance the two projects, in 2009 VIPFA established separate, subordinate indentures for each, with $250 million issued under the Diageo indenture and $40 million issued to date under the Cruzan indenture. All matching fund receipts, including those to be generated by the new Diageo distillery, benefit 1998 indenture bonds first. After satisfying requirements under the 1998 indenture, excess receipts from Cruzan and Diageo-generated matching funds are transferred to separate special escrow accounts based on each facility's production. Receipts from Cruzan VIRIL-related matching funds are not available to Diageo indenture bondholders after payment of 1998 indenture bonds, nor are future Diageo-related matching fund receipts available to Cruzan indenture bondholders. Excess revenue following payment of debt service on all indentures is used to meet various incentives under the USVI's agreements with the distillers. The higher matching fund rate, $13.25 per proof gallon, has been repeatedly renewed in the past. Under various alternative scenarios analyzed by Fitch, projected matching fund revenues provide for sufficient annual debt service coverage on 1998 indenture bonds, including assuming that the $13.25 rate is not renewed and the matching fund rate remains at $10.50. Including issuances under the Diageo and Cruzan indentures, annual coverage likewise remains adequate at either rate assuming timely completion of the facilities. At the lower rate, coverage of MADS on all indentures combined (in 2022) would require revenue growth. Diageo distillery construction is reported to be advancing on schedule, with some associated revenues to be received later in 2010. Other political risks include drafted U.S. legislation questioning the USVI's use of matching funds for economic development incentives; passage of such legislation in Fitch's view is remote. The ABT for 1998 indenture bonds excludes all matching fund receipts associated with the Diageo and Cruzan projects that are required to meet debt service, debt service reserve and certain other required payments under the Diageo and Cruzan indentures. Both Cruzan and Diageo must consent to 1998 indenture issuance. Proceeds of the current issue are to be used for budget relief by the USVI government, including repayment of a portion of a bank line of credit and for working capital, as well as to fund debt service reserves. The fiscal position of the USVI (rated 'BB+' by Fitch, with a Stable Outlook) has eroded sharply in the current downturn, prompting recourse to borrowing to cover operating gaps. (For further information, see Fitch's rating action commentary dated Feb. 11, 2010.) The USVI has pledged to set aside a portion of future expanded matching fund receipts for early repayment of borrowing for operations, including the current bonds. Prior matching fund bond issuances have been used for capital. U.S. consumption of distilled spirits, including rum, has grown steadily in recent years based on shifting consumer tastes and the increasing attractiveness of premium products. Rum consumption in the U.S. is subject to broader shifts in consumer demand; average demand declined by approximately 1.5% annually during the 1985-1995 period, but has increased by an average of 5.3% annually since. Despite the recession, rum consumption rose 1.6% in 2009, but is forecast to fall 1.9% in 2010 before resuming growth. Most USVI rum exported to the U.S. is bulk rum, representing approximately 13% of the U.S. market. Growth will be linked to completion of the Diageo facility and expanded shipment of branded rum from both facilities. Fitch also affirms various ratings of outstanding matching fund revenue bonds issued by the PFA as follows: --Revenue bonds (Virgin Islands matching fund loan note) series 2004A, 2009A-1 (senior lien) at 'BBB+'; --Taxable revenue bonds (Virgin Islands matching fund loan note) series 2009A-2 (senior lien) at 'BBB+'; --Revenue refunding bonds (Virgin Islands matching fund loan note) series 2009B (senior lien) at 'BBB+'; --Refunding bonds (Virgin Islands matching fund loan note) series 2009C (subordinate lien) at 'BBB'; --Subordinated revenue bonds (Virgin Islands matching fund loan note-Cruzan Project) series 2009A at 'BBB'; --Subordinated revenue bonds (Virgin Islands matching fund loan note-Diageo Project) series 2009A at 'BBB'. The Rating Outlook is Stable. (MORE TO FOLLOW) Dow Jones Newswires June 15, 2010 16:53 ET (20:53 GMT)