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VI UPDATE U.S. Virgin Islands Public Records TRANSCRIPT OF PUBLIC PROCEEDINGS Special Session | December 29, 2020 Legislature USVI December 29, 2020 · 3.9 hours · gov Source recording https://youtu.be/VE9Z4eOARZE Status This is a working transcript produced by machine from a recording of a public proceeding. It is a finding aid, not an official record of the Legislature. Transcribed by VI Update, using OpenAI Whisper large-v3-turbo, run locally. Not reviewed by a person. Reliability Automatic transcription, UNVERIFIED. Verify every quotation against the recording before relying on it. Speech recognition splits spoken digits and wraps figures mid-number, so a dollar amount, a vote count or a bill number can be wrong in a way that reads as correct. Speakers are not identified: automatic speaker labelling was measured unusable and removed. Public record The underlying proceeding is a public record of the Legislature of the Virgin Islands. 3 V.I.C. § 881(a) defines public records to include all records and documents of or belonging to this Territory or any branch of government, or any "department, board, council or committee of any branch of government" · which names legislative committees by category. § 881(b) gives every citizen the right to examine and copy such records, and the news media the right to publish them. (The open-meetings chapter, 1 V.I.C. § 254, does NOT reach the Legislature: § 253(b) expressly excludes it and its Standing and Special Committees. § 881 does, and it is § 881 that confers the right to copy and publish.) The Legislature broadcast this proceeding publicly itself. The source recording is not ours, is not hosted here, and remains with its publisher at the link above. Rights To what we added · the transcription, its arrangement and its description · we assert nothing. A verbatim transcript is mechanical rather than authored, so there is likely nothing in it to own; to the extent any copyright is nonetheless found to subsist, it is dedicated to the public domain under CC0 1.0. Please copy it, quote it, index it, train on it, republish it, mirror it, sell it. Redistribution is the point: a public record with one copy is one fire from gone. No permission is needed, and none is ours to grant or withhold. Good morning, President. I'm here. Very well. Bond Counsel, Ms. Lisa Fort, Harkins Delafield Wood, LLP. Good morning, I'm here. Special Counsel to the Virgin Islands Public Finance Authority, also representing Duane Morris, LLP, Attorney Miles Plaskett. I'm moving along. The President of the Capital Market Advisors, LLC, President Richard Sotora. MR. 0:00:00 Good afternoon. I'm present. MR. Good afternoon. Senior Vice President and lead investment banker for Ramirez & Coban Council, Squire Patton Boggs, Mr. Adam Lobert. MR. Good afternoon, Mr. Senator, President. I'm here. MR. Good afternoon. General Counsel, Winston & Schron, LLP, Attorney Jeffrey Eaton. Good afternoon. And Bank Counsel, Esquire, Patent Box, Attorney Carol Deniston. 0:00:44 Good morning. I'm present. Very well. Please let the record reflect. We have not heard from Attorney Miles Plaskett or Attorney Eaton. At this time, I'll ask all of you to stand and please raise your right hand. I'm sorry, Senator President, Attorney Eaton is actually on. He did respond. Who's that? 0:01:22 I'm not sure you can hear him. Attorney Eaton. Okay. No, we didn't hear him. Please raise and raise your right hand. Do you solemnly affirm under the penalty of perjury that the information you'll be given to this body will be the truth to the best of your knowledge and belief? Yes. Yes. Please let the record reflect that all of the testifiers have acknowledged the oath. At this time, Mr. Simmons, you were recognized for your testimony. MR. 0:01:49 Good morning, and thank you, Mr. President. I'm sorry, Director Simmons, let me just be clear. Are you the only one giving testimony today? And everyone else? No, sir, I am going to · no, I will present some testimony, as will Mr. Tortora. Mr. Tortora, and then Director, when they will wrap up the testimony. 0:02:33 Those are the three of us. Very well. You may proceed. Before I begin, I'll be correct. One thing on the agenda that you have there is Mr. Lubert is with Ramirez and Company, NADBAN Council, Squire Patton Box. That's a misprint. Very 0:03:01 Machine transcript · UNVERIFIED. Verify every quotation against the recording. Speakers are not identified. VI Update · usvipublicrecords.com · public record, no rights asserted (CC0 1.0) 1 of 11 Legislature USVI · Special Session | December 29, 2020 well, the record is so reflect. Thank you for that correction. Today, Senate President Nobel E. Francis Jr., President of the 33rd Legislature of the Virgin Islands, other members of the 33rd Legislature, fellow testifiers, media, ladies and gentlemen in the legislative chambers, as well as the viewing and listening audiences. I am Nathan Simmons, Director of Finance and Administration of the Virgin Islands Public Finance Authority. We appear before you pursuant to the governor's special session call and your invitation to provide testimony on BR20-1434, an act repealing and replacing act numbers 8329 and 8330, amending Title 29 Virgin Islands Code by repealing Chapter 24 in its entirety and replacing it with a new Chapter 24, and creating, as of the date hereof, a new entity named the Matching Fund Securitization Corporation, replacing the previously expired Corporation, hereinafter referred to as the bill. We previously appeared before this Honorable Body at special sessions held on August 25th, September 17 and December 8, 2020, and before the Committee on Finance on August 27, 2020, to present for your consideration and approval a transaction that would replace the existing matching fund revenue bonds issued by the Public Finance Authority with new matching fund securitization bonds to be issued by a newly created special purpose governmental corporation that would acquire all the government's rights, title and interest to the matching fund receipts and issue the new matching fund securitization bonds. After considerable testimony from us and questioning by you, as well as discussions between the executive branch and members of the 33rd legislature as to how best to take advantage of current and favorable market conditions, We appear before you now to present a slightly different and potential transaction that addresses and cures the concerns previously raised by you. Governor Bryan and his financial team are unwavering in their commitment to pursue a refinancing for savings of the outstanding high coupon matching fund revenue bonds to achieve a reduction in the government's overall debt service supported by matching fund receipts and to demonstrate the territory's ability to regain market confidence and investment grade access we are confident that the current interest rate environment in the bond market is advantageous to a refinancing of outstanding matching fund revenue bonds as an example of this one only needs to look across the waters to neighboring puerto where on December 9, 2020, the Puerto Rico Aqueduct and Sewer Authority, known as PRASA, saw $3.1 billion of orders for its $1.4 billion of refunding bonds. Buoyed by this turn of events for PRASA, we are compelled to bring this matter back once again to this honorable body, as the savings to be generated from the proposed refinancing are expected to have a beneficial economic impact in the territory, which continues to be affected by the loss of revenues due to the COVID-19 pandemic, the hurricanes of 2017, and other revenue shortfalls. 0:05:19 After extensive collaboration with our financing team and discussion with members of the legislature, We have restructured the transaction in the revised legislation to provide debt service savings in every year and a cap that limits the interest costs of the bonds while still allowing for leverage and negotiations with investors. And I'd like to repeat that. We have restructured the transaction in revised legislation to provide debt service savings in every year and a cap that limits the interest costs of the bonds, while still allowing for leverage and negotiations with investors. The new transaction reduces the amount of bonds outstanding from $950 million to approximately $818 million and provides savings in every year that the bonds are outstanding, helping to improve the overall credit profile of the government. 0:07:17 Further, under the prior deal, due to the front-loading of savings and higher debt service payments on the back end, the total savings to the government under the 20-year term was estimated at approximately $67 million. Under this revised refinancing transaction, the lower debt service payments to the government over the same term is approximately $226 million. In terms of changes needed to the legislation to bring about the transaction that is being presented to you today. We have added language in the bill to section 1405C, providing that for each fiscal year, the annual debt service of the initial matching funds securitization bonds may not exceed the annual debt service that would have been paid on the existing PFA bonds. This ensures that the principal and interest payments in any year during the term of the initial matching fund securitization bonds will be less than that would have been paid on the existing PFA bonds being refinanced. In other words, there will be savings to the government in every year. Second, a new section 4 was added providing that the true interest cost on the initial matching funds securitization bonds shall not exceed 4.5 percent per annum. 0:08:20 Though it continues to be our belief that the interest rate that the refinancing bonds will eventually sell at should be a function of the credit rating and market conditions on the day of pricing, we recognize that this cap is vital to this legislative body to ensure that the desired savings are achieved for the benefit of the people of this territory. You will also know that omitted from the bill is a closing deadline. The public finance authority and other members of its financing team assures this party and the public that the primary purpose of this transaction is to obtain savings and reduce debt service in a manner that benefits the people of the Virgin Let me be clear once again that Governor Bryan will not and cannot close a transaction that does not accomplish these goals. Also, as part of this transaction, minor technical amendments to the government's agreements with Diageo USVI and Cruzan Vera Limited and ancillary agreements relating to the issuance of the matching fund securitization bonds are required. The wrong company amendments 0:09:50 Machine transcript · UNVERIFIED. Verify every quotation against the recording. Speakers are not identified. VI Update · usvipublicrecords.com · public record, no rights asserted (CC0 1.0) 2 of 11 Legislature USVI · Special Session | December 29, 2020 presented to you today are identical to the amendments presented on December 8th. The changes to the legislation and the transaction structure do not require any corresponding changes to the current amendments to the wrong company agreements. Mr. President, the legislation before you for consideration is essentially the same as was approved in Acts Numbers 8329 and 8330, with the changes that I have just explained. Though the new safeguards in the bill improve upon the transaction that was previously authorized, the vehicle to achieve this result is almost identical. Similar to what was approved in Acts No. 8329 and 8330, the proposed bill would transfer all of the government's rights, title and interest to the matching fund receipts to a special purpose vehicle to achieve favorable interest rates and enhance annual debt service payments·debt service savings, I'm sorry. The Special Purpose Vehicle would issue new bonds in an amount necessary to call and defies all the existing matching fund debt, including the Diageo and Cruisan project bonds, and pay the costs associated with issuing the new refinancing bonds. This new corporation or Special Purpose Vehicle would issue matching fund refinancing bonds with a significantly lower interest cost than that currently being paid on the existing matching fund revenue banks and would therefore lower overall debt service requirements resulting in more of the matching fund receipts flowing to the government. The increased amount of matching fund receipts remaining will continue to flow to the government and the companies under their existing agreements just as it does today. As a reminder, under the structure that was previously approved 0:11:09 and what is currently being proposed here, each year the matching fund receipts will be sent from the U.S. Treasury through the Department of the Interior to a government-owned restricted account held with the bond trustee who will then be required to transfer the matching fund receipts within one day of their receipt to the Securitized Matching Fund Receipts Fund, from which the required payments on the matching fund refinancing bonds are made. After the debt service is paid on the matching fund refinance bonds, the remaining matching fund receipts are transferred by the trustee to a residual account for payment to the government and to the wrong companies under their respective agreements. The structure we are seeking to be reauthorized is intended to provide increased liquidity for the government because a greater portion of the matching fund receipts will be available for general governmental purposes after payment of a lower amount of debt service on the new refinancing bonds. 0:13:11 In other words, the remaining amounts to be received by the government are expected to be greater than the remaining amounts currently received by the government under the existing funds. The sale of the matching fund receipts to the matching fund securitization cooperation is proposed to provide enhanced security for bondholders that prevents diversion of the receipts from the debt service payments. Once again, after all outstanding matching fund securitization bonds are paid, the rights to the matching fund receipts will once again be owned by the government. It is important to note that we are not issuing bonds for additional debt, nor are we extending the final maturity of the current outstanding bonds. the term of the new refinancing bonds will not extend past the final maturity date of the existing matching fund revenue bonds. It is crucial that we move swiftly to secure these savings. 0:14:21 While market rates in the bond market are currently very favorable, any national or global event can easily trigger a change in market conditions. Additionally, the U.S. Department of Treasury and the Department of the Interior teams have confirmed that they will be able to provide written acknowledgement of the governor's irrevocable direction to remit the matching fund receipts to the government's restricted account once the proposed bill is passed, so long as there are no material differences to the legislation previously approved. I'd like to repeat that also. The U.S. Department of Treasury and the Department of the Interior have confirmed that they will be able to provide written acknowledgement of the governor's irrevocable direction to remit the matching fund receipts to the government's restricted account once the proposed bill is passed, so long as there are no material differences to the legislation. This is a significant achievement, which involves several months of discussions with the Federal Treasury and BOI teams of the current Trump administration. Should we fail to enact this legislation and obtain the written acknowledgments from Treasury before the change in administration, we will have to work with and educate members of the new administration who in all likelihood will not consider this matter a high priority during the presidential transition period for the new administration. 0:15:30 Such delays could cause us to lose the current favorable bond market conditions and incur additional significant legal costs that we would have otherwise not expended. All indications point to moving ahead expeditiously with this transaction. The Treasury DOI executed acknowledgement, as was previously indicated, would be included as an appendix to a new offering document and remove an unknown for investors which would help us achieve lower rates. While we have in prior testimony presented detailed background information explaining the history of matching funds, we will once again provide for the record a brief overview to this body and the listening and viewing audience so all can better appreciate the context of this testimony. The government of the Virgin Islands through the Public Finance Authority has historically sold bonds to provide funds for the cost of infrastructure and economic development and to support rum production by Cruzan and Diageo. Currently, the U.S. Treasury collects an excise tax of $13.50 per proof 0:17:16 Machine transcript · UNVERIFIED. Verify every quotation against the recording. Speakers are not identified. VI Update · usvipublicrecords.com · public record, no rights asserted (CC0 1.0) 3 of 11 Legislature USVI · Special Session | December 29, 2020 gallon on rum manufactured by Diageo and Cruzan on St. Croix and shipped to the United States and the government receives a rebate of $13.25 per proof gallon from the excise taxes that the federal government collects. This is referred to as a matching fund receipts or rum cover over. These funds are transmitted directly to the Bank of New York Mellon as trustee for the existing bonds and held in an escrow account until they are distributed by the trustee. These monies are used to pay one periodic principal and interest to the bondholders, two the wrong companies according to agreements executed for economic development, and three the government. The existing matching fund revenue bonds would have an average interest rate of 5.58 percent with some existing matching fund revenue bonds paying as high as 6.75 percent. Because of the well-known economic difficulties that have been experienced in the Virgin Islands for several years, the existing matching fund revenue bonds have been downgraded by the credit rating agencies to below investment grade. We cannot refinance the existing matching fund bonds through the public finance authority with sub-investment grade credit ratings on its senior and multiple subordinate liens and expect to generate any significant level of savings. Again, I repeat, we cannot refinance the existing matching fund bonds through the PFA with sub-investment grade credit ratings and expect to generate any significant level of savings. In contrast, the new refinancing bonds to be administered through the proposed matching fund securitization corporation were awarded a preliminary triple b investment grade rating from coal bond rating agency reflecting and recognizing the stronger protections for bondholders and providing us with public bond market access for the first time in several years 0:19:10 under the substantially identical legislation proposed today we expect that the investment grade rating will be maintained for the bonds authorized under this legislation. In connection with the existing matching fund revenue bonds, a portion of the bond proceeds was set aside in a debt service reserve fund. This fund was established to provide security for the bondholders. If at any time there are insufficient matching fund receipts to make a debt service payment on the bonds, the shortfall would be drawn from the debt service reserve fund until it is exhausted. If that reserve fund is never drawn upon, it is released to pay the final year's interest and principal on the outstanding series of matching fund revenue bonds. For the record, since it was established over 22 years ago, the existing debt service reserve fund has never been drawn upon and has cost us tens of millions of dollars in additional interest. Also, because of the projected increased level of debt service coverage under the proposed matching fund securitization corporation structure, the likelihood that a debt service reserve fund for the matching fund securitization bonds would ever be drawn upon is even more remote. The whole laws of the matching fund securitization bonds will enjoy a debt service coverage of $3 of matching fund receipts for every $1 of debt service due on the matching fund bonds. 0:21:00 This is a significant improvement over the current minimum coverage ratio of $1.50 of matching fund receipts for every $1 of debt service on the senior lien bonds. This added coverage negates the need for a new debt service reserve fund for the securitized matching fund bond holders. Keep in mind that the debt service reserve fund is funded from bond proceeds. Therefore, we will be paying interest on this amount over the life of the bonds. 0:22:38 The amount currently in the debt service reserve fund will be released and applied in part to reduce the amount of matching fund refinancing bonds being issued, thereby reducing both the amounts of principal and interest to be paid on the new refinancing bonds over their term. It is important to note that approximately $80 million to fund a new debt service reserve fund will allow the corporation to avoid substantial interest expense on the debt service reserve fund monies that could be used for governmental purposes. The $80 million represents one year's principal and interest on the matching fund refinancing bonds. The cost of maintaining the current debt service reserve fund of approximately $130 million for the existing matching fund reserve bonds, revenue bonds, has been very expensive for the people of the Virgin Islands and has resulted in the government receiving less the residual tax receipts in the past and foregoing major infrastructure needs and improvements while cash sits in reserve some locked away until October 1, 2039. 0:23:11 In summary, this transaction will provide for the refunding of all the existing matching fund revenue bonds by the public finance authority by having the matching fund securitization corporation issue matching fund securitization bonds at lower interest rates. Once the matching fund securitization bonds and all obligations under the indenture relating to the matching fund securitization bonds are paid in full, the government will once again own the rights to the matching fund receipts going forward. As we have stated before, the matching fund securitization corporation may issue additional matching fund securitization bonds in the future only upon authorization by the legislature and the corporation's board of directors, which includes the governor, and after all requirements are met for issuing additional matching fund securitization bonds. As a reminder, we chose to pursue this refinancing mechanism of the matching fund revenue bonds because the public finance authority under current market conditions is not able to restructure the outstanding matching fund bonds in a traditional refunding bond structure. We saw what happened in 2017 when the public finance authority attempted to issue additional matching fund revenue bonds, but had to withdraw the offering on the day of pricing due to insufficient orders from investors to complete the offering this proposed reauthorized securitization to the matching fund 0:24:32 Machine transcript · UNVERIFIED. Verify every quotation against the recording. Speakers are not identified. VI Update · usvipublicrecords.com · public record, no rights asserted (CC0 1.0) 4 of 11 Legislature USVI · Special Session | December 29, 2020 securitization corporation is once again expected to provide access to the public investment grade bond markets the difference in the interest rates that is expected to be paid on imagine fund securitization bonds versus the interest rates being paid on the existing matching fund revenue bonds is expected to significantly reduce overall debt service that is supported by the matching fund receipts once the transaction is completed and the refinancing bonds issued the savings derived from the refunding will be presented to the legislature with the governor's recommendations for the projects or priorities to be funded we have a choice before us today we either make a choice to continue to pay high interest rates on our debt or we make a choice to embrace an opportunity with the new safeguards to lower our costs and apply the savings to benefit the government and the people of the virgin islands mr president and senators this concludes my testimony thank you for granting us the opportunity to appear before you today. You will also hear testimony from Richard Tortora of Capital Markets Advisors, Adam Lobera from Ramirez and Company and the Director of Office and Management and Project, Jennifer O'Neill. In addition, with you again today to respond to your questions Attorney Lisa Forsch from Harkins, Delafield and Wood, LLC, bond counsel to the Public Finance Authority, who will answer questions on the existing matching fund bonds. 0:26:33 Attorney Miles Plaskett from Duane Morris, LLP, special counsel to the Public Finance Authority for the matching fund securitization corporation, is available to answer questions regarding the matching fund securitization cooperation. Attorney Carol Denniston from Squire Patent Box, US LLP, Bond Council with respect to the new matching fund bonds are available to respond to questions regarding the proposed legislation, the arrangements with US Treasury, and the overall structure of the refinance. 0:28:03 Acting Finance Commissioner Carina Modest Elliott will respond to questions on the functioning of the transfers of matching fund revenues in the manner prescribed by U.S. Treasury. Attorney Jeffrey Eaton with Winston & Strawn LLP will address questions on the amendments to the agreements with the wrong companies and attorney key walker general counsel to the public finance authority will be available to address and clarify legal or other concerns thank you very much the team i are available to respond to your questions and address any of your concerns mr totoro will now make a presentation oh thank you very much for director simmons mr totoro you recognize for your testimony at this time thank you and good afternoon senate president francis other senators of the legislator legislature other testifiers and members of the government's finance team and the viewing public i'm richard tortura president of capital markets advisors llc my firm serves as the independent registered municipal advisor to the virgin islands public finance authority this afternoon i will provide you with an update from when i last addressed you earlier this month on the revised plan of finance and other issues related to the proposed refinancing of the pfa's outstanding matching fund bonds during the hearing held on december 8th several of you voiced your concerns regarding the transaction that was being proposed at that time the finance team heard you and went back to work to address each of the issues that you had raised The result is a significantly changed and revised transaction that responds to your concerns and still results in a reduction in the government's overall debt and increased savings for the benefit of the people of the U.S. Virgin Islands. Under the new structure, the proposed transaction is 0:28:37 simply a refinancing of the existing debt for savings. We will be able to do this by selling the new bonds through an investment grade rated entity at interest rates that are significantly lower than the rates currently being paid on the PFA's outstanding matching fund bonds. The new rates will also be significantly lower than what the PFA could possibly achieve if it were to try to sell the refinancing bonds on its own. The PFA was last in the market in 2017 and was unsuccessful in its efforts to sell debt. The newly structured transaction will result in reduced principal and interest payments in each of the next 20 years that the refinancing bonds will be outstanding. Most importantly, in response to the argument that the old structure kicks the can down the road, under the new structure there will be no increase in principal and interest payments in the later years, but rather reduce principal and interest payments in each of the next 20 years, and the term of the bonds will not extend beyond the term of the existing PFA matching fund bonds. An added benefit under the new structure is that the amount of the new debt being issued will be approximately $130 million lower than the amount of PFA matching fund debt outstanding today. The reduced principal and interest payment on the refinancing bonds for the government may total as much as $15 million in each of the next 10 years, followed by payments that could be $8 million or less in years 11 through 18, followed by savings that could be as much as $6 million in each of years 19 and 20. Based on the success of the recent refinancing in Puerto Rico by its water and sewer authority, CRASA, which unlike our issue, was unrated and sold to a very limited number of investors, 0:30:40 our team of underwriters, which includes Ramirez & Company, Bank of America Securities, and Jeffries and company are confident that the refinancing bonds can be sold below the rate secured by PROSA. You will recall that the government's underwriting team was selected following a competitive evaluation process conducted earlier this year, with 0:32:33 Machine transcript · UNVERIFIED. Verify every quotation against the recording. Speakers are not identified. VI Update · usvipublicrecords.com · public record, no rights asserted (CC0 1.0) 5 of 11 Legislature USVI · Special Session | December 29, 2020 the lead underwriter, Ramirez and company, deemed to have submitted the best proposal. In response raised to concerns raised by you, our underwriters have imposed the interest rate cap sought of 4.5% on the new refinancing bonds. Puerto Rico's $1.3 billion PROSA bonds were priced on December 7, 2020, without a credit rating, and offered to a very limited number of investors. Virtually all of the PROSA bonds were sold as tax-exempt, while 80% of our new refinancing bonds will be sold as tax-exempt, with 20% sold as taxable. Taxable bonds pay higher interest rates perhaps as much as three quarters of one percent than tax-exempt bonds. Puerto Rico used monies in its existing debt service reserve fund to pay for improvements to its water and sewer system while all the money in the PFA's existing reserve fund will be applied to reduce the amount of refinancing bonds being issued. The triple B rating assigned to the refinancing bonds is firmly in the investment grade category and is eight notches higher than the rating on the PFA's outstanding matching fund bonds, as well as the credit rating of the Virgin Islands government itself. If the PFA were to try to sell the refinancing bonds on its own, my firm is not confident that all the bonds could be sold due to their sub-investment grade rating. However, if they could be sold, CMA strongly believes that the interest rates would be significantly higher than those that can be achieved using the new entity with its investment grade rating. The government last successfully issued matching fund bonds in 2013 and gross receipt tax bonds in 2014. An attempted sale of matching fund revenue bonds in 2017 was unsuccessful due to lack of investor support. Crowell Bond Rating Agency's rating of BBB on the refinancing bonds will help to ensure their marketability to investors. A successful pricing of the refinancing bonds will mark an important milestone in the government's financial history. The government's return to the capital markets would not be possible without the creation of the matching fund securitization corporation. It will not only allow the government to significantly reduce its future interest payments on the new refinancing bonds, it will also provide a mechanism for the government to gain access into the market again in the future. 0:34:33 should the members of this body approve the revised transaction presented today a new timeline for this transaction would provide our underwriters with two weeks to market the refinancing bonds this additional time should result in broader market support for this transaction by providing investors with more time to secure the in-house credit approval required to allow them to place orders for the refinancing bonds we will also build in seven to 10 days for the government's legal team to prepare all the documentation required to close this transaction after the bonds are sold. The entire process up through closing is anticipated to take approximately five weeks from the date of authorization by the legislature. This concludes my testimony. I would be pleased to address any questions that you may have. 0:35:27 Mr. President, as we have done at prior hearings, I'd like to have Mr. Adam Laubert, our lead banker from ramirez i add to my testimony this afternoon thank you uh thank you very much uh mr lobert you're recognized for your testimony at this time thank you good afternoon mr senate president i just want to check to see if the slides are up before i begin and good afternoon you're coming in clear slides oh right i yes the slides media i have some slides to present we're good to go okay thank you uh thank you mr torr good afternoon somebody stand by one one sir stand by okay were those slides sent into the legislature well are you sharing your screen uh yes the slides were sent in well we'll take a two minutes recess and um identify those slides and get them up committee of the whole session scans and recess for two minutes I see something weird up there. Thank you. Thank you. We'll be right back. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. 0:36:18 We're out of recess, Mr. Lobert, your slides are loaded. You may proceed. Thank you. 0:44:07 Mr. Lombardi, you're breaking up. You might need to get a little bit closer to your device. Yes. Can you hear me now? Yes. Try that. Yes. Thank you. Before I start into the slides, I just want to turn it back to Mr. Tortora for a moment. Thank you. Mr. Senate President, I would just like to read into the record, if I may, make notice of two pages from the preliminary offering circular that was used in conjunction with the September offering in which we provide information to investors about the composition of our underwriting team. As this group knows, there was an RFP process conducted earlier this year, and Ramirez and company was selected to serve as the lead underwriter, but their efforts will be supplemented by our two co-underwriters, Bank of America Securities and its affiliate Merrill Lynch and Jeffrey's LLC and its affiliate E-Trade Securities. I just wanted that to be known in the record, if I might. Thank you. Very well. Thank you. That'll be so noted. 0:45:07 you said you wanted to read uh our correspondence or or just put our information on the record uh the the latter the um i just wanted to make it aware that this was circulated by um attorney born uh this morning the two pages i need i needn't read it i just wanted to put it on notice that it is part of the record very well thank you mr lobert you're welcome Yes, thank you, Mr. Senate President. Good afternoon, senators. Just a quick public service announcement before I begin. As the same as last time, Ramirez is here in its capacity as underwriter and not financial advisor. That's just sort of a regulatory PSA over there. But let me just jump right into the slides. We're going to go through sort of the illustrative example. I'll go through some of the assumptions for the plan of finance and also go through some of the numbers in a 0:46:25 Machine transcript · UNVERIFIED. Verify every quotation against the recording. Speakers are not identified. VI Update · usvipublicrecords.com · public record, no rights asserted (CC0 1.0) 6 of 11 Legislature USVI · Special Session | December 29, 2020 format that you are familiar with from the last couple times. The plan that the government has is to refund all the outstanding high interest PFA matching fund bonds with the new lower cost securitization bonds in a refinancing that utilizes a traditional refunding structure. What that means is we're gonna try to have savings in every single year without extending the debt and sort of make it more of an apples to apples traditional saving structure that you've seen in the past. Where we are today is the average coupon on the existing bonds is a 558. The government expects to achieve the following goals. Debt service savings in every fiscal year over the life of bonds. This is now a provision required by the legislation and also a true interest cost lower than the 450 cap rate in the legislation. Obviously, if you approach that cap, the transaction is not going to happen. In that, still, as we stand here today, the government has negotiated savings splits with Diageo and Cruxion, respectively. 70% of the savings generated from the funding of the Diageo project bonds and 60% of the much smaller Cruxion project refunding bonds. Different from last time is capitalized interest is no longer utilized to offset GVI share of the interest payments in the first three years. That was something that all the senators had seemed to mention in one form or another, that was something where there was no debt service on a net basis in the first three years, that provision is gone. Each and every fiscal year now would have savings with no increased debt service in the later years. The prior argument of kicking the can down the road, that is very much no longer the case at this point. The one thing we cannot control, obviously, is where the market will be on the day of pricing. But based on recent transactions and where we stand today under the current conditions, we should be below the 450. However, if should the anticipated rates on the pricing date approach the 450, the governor could either modify or pull the transaction. In short, there will be no transaction that will be executed that has a true interest cost that is higher than the 450 cap rate under any market condition. Next slide, please. 0:49:15 Okay, so here we are on slide two, the plan of finance. The goal here to take out all the high interest bonds and replace them with low interest bonds. Approximately 80% will be triple tax exempt and also will be investment grade, which is very much different than any comparable transactions that are out there and 20% will be federal taxable. That's just due to where tax law is today with regards to advance for fundings. Very similar to last time, we will only issue bonds that are covered by the existing term of the Diageo Inclusion Production Agreements and we are not extending the final charity. It will be the same as it was before October 1st, 2039, but there will be a lot less bonds out the back end. The structure of the bond debt service is to provide a minimum of three times coverage in every single year. That's $3 of revenues for every dollar of debt service. service in each and every fiscal year over the life of the bonds, and the savings pattern, as you will see in a couple of slides, will be shaped by the existing debt service. What that means is that in years where you have more debt service today, the savings will be greater and vice versa. As Mr. Tortora mentioned, we are going to apply the release to existing debt service reserve fund monies to reduce the amount of refunding bonds to be issued. This will be a smaller deal than was previously proposed in terms of the revenues those are pretty much the same the fiscal 2021 advance from the department of interior of 272.95 million and we assume that it's a 13.25 per proof gallon cover over rate that is constant over the life of the bonds next slide please thank you so this is an example of the debt service coverage in the same format that you have seen previously column a is where the receipts are projected to be for 2021 it's a little bit different because that's that's already been paid and some of the monies that are there are currently retained in the indenture for purposes paying interest. Column B is what the GVI's gross debt service would be under the new structure. Column C is what the Diageo project would be 0:50:14 under the new structure. Column D does the same for Crusion. Column E, although all of the numbers there are blank, we left the column intentionally to show you that there is no capitalized bond interest in the numbers for this iteration and column F basically sums up column B, C, D and E and column G shows you what the debt service coverage ratio has to be and the first 10 years it's about a 305 after that it rises to about a 435 and then after that the coverage is basically pretty high going forward from 14 up to 50. That's where sort of the tail of the transaction is very small and the bulk of the bonds are concentrated in the first 10 years. 0:52:42 This is a structure here where the government's bond debt service, as you'll see on the next page, will closely mirror in the same shape as it exists today. So let me turn to the next slide, slide, slide four. Okay, so this is the comparison slide as to what you have today versus what you can expect or project to pay based on the securitization structure. So the first column shows where you are today. 0:53:27 Obviously, 2021 is a partial year. the debt service payment was made on October 1st, what's left is the April 1st payment. From 2022 onwards, that's exactly what you would pay under the existing PFA bonds, assuming nothing happened. Those are the dollars out the door. And as you can see debt service averages a little over 80 to 85 million between 2022 and 2030, dropping down to a little under 50 million, 31 through 33. And basically from 2034 onwards, about 5.5 million to basically fiscal 2040. So now let's turn to the next column. So the next column shows what your net debt service is here and the reason we call it the net debt service is because it is the dollars that you expect to pay after consideration of 0:54:11 Machine transcript · UNVERIFIED. Verify every quotation against the recording. Speakers are not identified. VI Update · usvipublicrecords.com · public record, no rights asserted (CC0 1.0) 7 of 11 Legislature USVI · Special Session | December 29, 2020 the rum company shared savings split. So in the first 10 years or so that service will drop from 81 to 85 million to about $68 million, give or take. In 2031 through 33, debt service will drop to about $41 million. And then from 34 to 40, what might look pretty odd is that it is actually net negative. What that means is that the dollar amount of GVI's share of rum company savings exceeds the amount of the scheduled debt service. That means that the split that you get completely offsets the debt service you would have to pay. What that means is that it kind of effectively shortens the deal quite a bit from a cash flow basis when you look at the following column the net reduction in total debt service you can compare the prior two columns and during the first 10 years the average savings is about 15 million plus or minus the next eight years it's a little over eight million dollars a year and the final two years it's 5.8 million dollars per year that is sort of the savings pattern which kind of neatly sort of mirrors where your existing debt service is today it sort of of steps down in two different steps over time between 22 to 2030, 31 to 33, and 34 to 40. And that total reduction in debt service as previously mentioned is about 226.6 million, taking total debt service from 953 million down to about 726 million. This is based here on current projections as we get closer to the bond market obviously those numbers can and will change and they can improve or they can get a little bit different but but this is sort of where we are today in terms of the scenario i'm sure you'll have questions a little later on thank you for the time on this and that concludes my presentation thank you very much mr lobart for your presentation there i guess next we'll go to director o'neill thank you thank you good day senate president novelle francis jr other members of the 33rd legislature of the u.s virgin islands fellow testifiers and team members and members of the listening and viewing audience i am jennifer o'neill director of the office of management and budget and a member of the public finance authorities board i appear as part of the refinancing team and pursuant to your invitation to provide testimony on br20-1434 an act repealing and replacing act numbers 8329 and 8330 amending title 29 virgin islands code by repealing chapter 24 in its entirety and replacing it with a new chapter 24. Terminating the existence of the matching fund securitization corporation creating as of the date hereof a new entity named the matching fund securitization corporation. I will conclude today's team presentation by reiterating that there is no single option that can be used to resolve the long-standing systemic issues that the territory faces and we have an obligation to identify analyze and take advantage of each opportunity that arises for the benefit of the people of this territory this legislation is truly a collaborative effort between the first and second branches of government to reduce the territory's overall debt, to take a major step towards improving the government's credit worthiness so that in the future, it can enter the market without the need for an SPV 0:57:00 and to increase cash flow. As we all know, it is the legislature that will appropriate the savings to be realized from the refinancing of the existing bonds. and it is you who will decide how these funds will be used to benefit the people of the territory. This opportunity to improve the lives of our people is just too great to pass by. You, the members of the 33rd Legislature, understand this well and also understand that this transaction presents a unique opportunity for the people of the Virgin Islands that may not exist for very long. 0:58:59 As Director Simmons pointed out in his testimony, this new transaction reduces the amount of bonds outstanding from $950 million to approximately $818 million and lower debt service payments of $226 million for the government over the 20-year term of the bonds, thereby helping to improve the overall credit profile of the government. With this perspective in mind, doing nothing and not taking advantage of this opportunity are simply not options that we feel would be in the best interest of the government or the people of the Virgin Islands. As I stated in my December 8th testimony, not repealing and replacing Act numbers 8329 and 8330 may also send a message to interested parties that the U.S. Virgin Islands has neither the capacity nor the courage to implement practical steps to address its challenges. The Brian Roach Administration sees the need to be bold and to make the necessary tough decisions, to be innovative and show the courage to tackle the financial challenges facing the territory, which includes refinancing our outstanding matching fund debt to reduce our future debt service costs. In simple terms, this refinancing of our current debt to obtain a lower interest rate and the resulting lower payments makes sense. We recognize that this transaction has been reviewed by many as convoluted and unnecessary, and there have been lots of comments and questions as to why Governor Bryan keeps pushing for this transaction. Some also ask, what's different this time? 0:59:39 And we also recognize ongoing questions surrounding the use of a special-purpose vehicle. In summary, this transaction has been reduced to a basic refinancing of existing debt with no front-loading of the savings as previously proposed. This means that there will be no increased debt service on the back end and no $85 million per year for three years on the front end. You will recall that the initial transaction would have allowed for $85 million per year for the first three years and that Governor Bryan desired that $85 million per year be directed to commencing to solving the government employees' retirement systems deficit issue. Due to the concerns raised by this body, the front loading of the savings has been eliminated. 1:01:34 Machine transcript · UNVERIFIED. Verify every quotation against the recording. Speakers are not identified. VI Update · usvipublicrecords.com · public record, no rights asserted (CC0 1.0) 8 of 11 Legislature USVI · Special Session | December 29, 2020 Additionally, the use of the SPV allows us the opportunity for a higher investment grade credit rating and substantially increases the probability of the success of refinancing the existing matching fund debt. As I explained in the December 8th hearing, the SPV will have a higher credit rating than what the GVI and the PFA currently have, which will allow it to access lower borrowing rates due to the perceived reduced risk. This is a common practice in the municipal finance world. refinancing to take advantage of the current market conditions and to reduce outstanding GDVI debt and is by no means unnecessary. In fact, refinancing at a lower interest rate is the only way to reduce existing debt payments. The savings of approximately 15 million dollars per year in each of the first 10 years of the government with additional savings that each subsequent year can then be put towards the general fund address areas where we continue to struggle to become current on outstanding debts such as workers compensation payments to providers payments owed to hollers and other vendors by the waste management authority unemployment insurance and or even the gers unfunded liability to name a few we are here before you today for the second time this month to explain to the 33rd legislature and the listening public all of the benefits of this refinancing transaction while also asking you to exercise your sacred duty to benefit the people of the Virgin Islands and the treasury of the Virgin Islands. We ask you to support this effort. Senators, Governor Bryan and Lieutenant 1:02:29 Governor Roach are committed to ensuring that this remains a collective and collaborative effort. you have voiced your opinion and we have heard you loud and clear the transaction before you today addresses your concerns while also ensuring that there will be a financial and economic benefit to the territory in conclusion i reiterate once again the following points we are not borrowing any extra money the rum cover over revenues will continue to be issued to us we will be paying less interest on a lower amount of debt and have more money to spend for our priorities we will continue to be transparent and excellent stewards of government funds we will continue to be prudent with our expenditures and diligent about collecting revenues we are level-headed decision makers and there is no better plan. Thank you the members of the 33rd legislature for your cooperation and the willingness to work with us to find a viable solution benefiting the people of the Virgin Islands for vetting this transaction, recognizing the benefits to all residents, and providing your approval. Enormous thanks also to everyone who contributed in any way towards the construct and success of this transaction. Mr. President, this concludes our collective testimony and we remain available to answer any questions that you or the Committee of the Whole may have. Thank you. MR. Thank you very much, Director O'Neill. And 1:04:47 this concludes the testimony portion. Colleagues, we heard from Director Nathan Simmons, Mr. Richard Totora, Mr. Adam Lobert, and of course just wrapping it up is Jennifer O'Neill. At this time we'll go to a recess and when we come back we'll open up the floor for questions. The committee of the whole stand in recess at this time. Thank you. Thank you. Thank you. We'll be right back. Thank you. Transcription by CastingWords Thank you. 1:06:37 We'll be right back. Thank you. [2 such phrases repeated 14 times · standby audio before the proceeding, transcribed by the recogniser as speech] 1:10:44 Thank you. We'll be right back. Let's get started. [3 such phrases repeated 26 times · standby audio before the proceeding, transcribed by the recogniser as speech] 1:17:44 Thank you. Thank you. 1:30:44 Thank you. Thank you. 1:31:44 Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. We'll be right back. We'll be right back. We'll be right back. We'll be right back. Thank you. We'll be right back. Transcription by CastingWords Let's get started. We'll be right back. Let's get started. We'll be right back. We'll be right back. We'll be right back. We'll be right back. We'll be right back. Let's go. Thank you. 1:32:44 Let's go. We'll be right back. 1:44:44 Thank you. Thank you. 1:45:44 Thank you. Thank you. Thank you. 1:46:44 Thank you. [1 such phrases repeated 9 times · standby audio before the proceeding, transcribed by the recogniser as speech] 1:48:14 Thank you. [1 such phrases repeated 8 times · standby audio before the proceeding, transcribed by the recogniser as speech] 1:52:44 Thank you. We'll be right back. I don't know. [3 such phrases repeated 15 times · standby audio before the proceeding, transcribed by the recogniser as speech] 1:56:44 Machine transcript · UNVERIFIED. Verify every quotation against the recording. Speakers are not identified. VI Update · usvipublicrecords.com · public record, no rights asserted (CC0 1.0) 9 of 11 Legislature USVI · Special Session | December 29, 2020 so Oh, my God. 2:04:14 Thank you. Thank you. 2:05:14 Thank you. Thank you. Thank you. 2:06:14 Thank you. Thank you. 2:07:44 Thank you. Thank you. 2:08:44 Thank you. Thank you. We'll be right back. 2:09:44 Thank you. Thank you. Let's go. 2:11:14 Thank you. Thank you. Thank you. Thank you. 2:12:44 Thank you. Thank you. We'll be right back. 2:14:44 Thank you. Thank you. Thank you. 2:16:14 Thank you. Thank you. Thank you. 2:17:44 Thank you. Thank you. 2:19:14 Thank you. Thank you. 2:20:14 Thank you. Thank you. 2:21:14 Thank you. Oh, my God. [2 such phrases repeated 12 times · standby audio before the proceeding, transcribed by the recogniser as speech] 2:22:14 Let's go. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. We'll be right back. We'll be right back. We'll be right back. Thank you. Thank you. Let's get started. Let's get started. Thank you. Let's get started. Thank you. Thank you. We'll be right back. 2:28:14 Thank you. Oh, oh, oh, oh, oh, how can I say goodbye? We'll be right back. We'll be right back. 2:39:14 I'm so sorry that I broke your heart to be upset We'll be right back. We'll be right back. 2:41:14 We'll be right back. Thank you. 2:42:44 Thank you. Thank you. 2:43:44 You're all that I want to love But now it's a day. Thank you. 2:44:44 Thank you. Take this love away This love away This love away Thank you. [2 such phrases repeated 47 times · standby audio before the proceeding, transcribed by the recogniser as speech] 2:46:09 We're out of recess, testifiers. Please turn your cameras on, Mr. Nathan Simmons. At this time, we'll move towards a closing statement from you and also OMB Director O'Neill. 3:10:09 MR. Good afternoon, Mr. Chairman. Did I hear you say that you moved to a closing statement? So at this time, we'll take your closing statement. I have to say that you caught us a little bit by surprise there, Mr. President. We were expecting to have a few rounds of questions to explain any concerns that members of the body may still have regarding this transaction. But let me say that, as we've indicated, this transaction is a straight refinancing of the outstanding matching fund bonds that the PFA currently have. We hope that we've provided you with all of the information to win your approval of this transaction. We believe that the establishment of a securitization corporation to refund these bonds is the best possible way that we could ensure that we could achieve an investment rate rating and be able to refinance these outstanding bonds at a lower interest rate. Some have indicated that the PFA should proceed to do that on its own and I think we've demonstrated clearly that the PFA currently does not have the credit capacity to be able to refinance these obligations under the PFA these obligations are currently rated non-investment grade and the PFA are closely linked to the government itself both non-investment grade so to try and refinance these obligations now under the PFA would not result in our being able to achieve the lower interest rates that we anticipate that this securitization cooperation can achieve so as I said you know we've we hope we presented you with all the information that you you need to gain your approval of this transaction and I thank you very much for giving us the opportunity thank you very much director simmons at this time director o'neill will go to you for your closing statement thank you very much senate president francis i'm actually going to defer to director simmons and his closing remarks and let that be the last for the team thank you all very much for the opportunity today uh thank you very much and i want to thank all of the presenters uh today and um you know at this time and at present this bill does not satisfy the very important threshold of a comprehensive financial accountability and requires further analysis and amendments in order to best protect the people and the future of 3:10:52 Machine transcript · UNVERIFIED. Verify every quotation against the recording. Speakers are not identified. VI Update · usvipublicrecords.com · public record, no rights asserted (CC0 1.0) 10 of 11 Legislature USVI · Special Session | December 29, 2020 the virgin islands As a legislator, I have seen how important ratings by the three top rating entities are, something that the territory is currently lacking. This body has closely monitored the recent parcel deal that resulted in the authority being able to finance or float $1.37 billion in bonds, despite being rated as a non-investment rate. The collective reluctance to seek these ratings is not positioning us for success. 3:14:39 We are concerned about the new findings relative to CRAWL, as outlined by the Securities and Exchange Commission in reference to methods utilized for commercial mortgage backed by security of collateralized loan obligation notes which led to civil penalties of over million dollars which certainly merit further investigation and analysis and this information was just brought to light to this body today the legislature is committed to strategies that lower debt fund grs and other infrastructural projects critical to the virgin alice quality of life but believe that this bill is not the pathway forward as currently constructed. We move forward with the federal government's commitment to hold interest rates steady for months ahead and with our own plan or collective plan with the 34th legislature, working with Governor Bryan and his team and other critical stakeholders for refinance the existing Internal Revenue Matching Fund. I am carefully reminded by something that former Governor Farrelly always say, hurry dog, eat raw meat. This is not about being risk-averse. This is about considering all angles in the legislation that had far-reaching impacts for present and future of this territory. 3:15:13 This time, Thank you. Thank you. You [3 such phrases repeated 78 times · standby audio before the proceeding, transcribed by the recogniser as speech] 3:16:54 People named in this transcript SUSPECTED, and a finding aid only. Names were matched by machine against the spellings used across all 426 of our transcripts, and the title is the one used in the room. Being named here is NOT evidence that a person attended or spoke · only that the name was said. Speech recognition mishears names, so a spelling may be wrong even where no alternative is offered. 6x Governor Albert Bryan Jr heard in this transcript as: Bryan Machine transcript · UNVERIFIED. Verify every quotation against the recording. Speakers are not identified. VI Update · usvipublicrecords.com · public record, no rights asserted (CC0 1.0) 11 of 11