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Retirement Fund asked to buy “some of our bonds”

“We’ve offered to sell to them (Retirement Fund) some of our bonds (American Samoa Government) which would be a better return,” said Secretary of the American Samoa Economic Development Authority (ASEDA) board, Steve Watson, in response to Samoa News queries.

 

Samoa News received calls last week from the public, expressing their concerns after hearing of the government's intention to sell $30million worth of bonds to the Retirement Fund.  Callers asked what the impact will be on those who are intending to live on their retirement.

 

However according to ASEDA board member and the governor’s executive assistant Iulogologo Pereira, selling the Bonds to the Retirement Fund will have no financial impact on the retirees because these bonds will be repaid in full plus the attached interest rate.

 

“It is my understanding that this is one of the options being considered by ASEDA and no decision has been made regarding this issue. The Retirement Board will certainly evaluate earnings and risks associated with the proposal if ASEDA elects to submit a proposal to the Retirement Fund Board of Directors.

 

“This issue has to be discussed by the Governor and the leaders of the Legislature. It is premature to speculate when the required process has not been executed,” Iulogologo stated.

 

In an interview with Watson on Wednesday, he explained to Samoa News the offer has already been made to the Retirement Office and it’s up to them whether they will accept the offer or not — and “we hope they do, which makes our job a little easier.”

 

When asked to comment on the risk of selling the bonds to the Retirement Fund, Watson explained that they don’t go to the bond market contemplating that “we’re going to default on the bond. Right now the government is servicing the Retirement Fund and if they buy some of the bonds, the government will continue to service the Fund and we don't expect to miss any payments.”

 

He said the bonds are sold carrying a rate of interest, and “we want that interest to be low as possible, that saves the government money” and that’s what they are trying to do at the bond market — trying to set the price and the interest rate and whoever the bond earners are, they will earn the interest.”

 

In the meantime, ASEDA has adopted a resolution in which it authorized the issuance of the Issuer’s General Revenue and Refunding Bonds, Series 2015 in an aggregate principal amount of not to exceed $80,000,000 (with such additional or other title and/or series designation(s) as may be determined by the officers of the Issuer) (the “Series 2015 Bonds”), to mature in not more than twenty-five (25) years from their date or dates, to be sold at a price not less than ninety-seven percent (97%) of the total principal amount thereof, and to bear interest at a maximum net effective rate or rates of not to exceed nine percent (9.0%) per annum.

 

This was in a Notice that was posted in the Samoa News, which says the series 2015 Bonds will be issued for the purpose of (a) financing the costs of acquisition and construction of various capital projects and acquisitions in the Territory (collectively, the “2015 Projects”); (b) refunding certain outstanding obligations of the Territory; (c) funding a deposit to a debt service reserve fund and (d) paying the costs of issuance of the Series 2015 Bonds.

 

The Series 2015 Bonds are to be issued and sold by the Issuer pursuant to the Resolution, and included as part of said Resolution, a form of a General Indenture of Trust, and a Supplemental Indenture of Trust (collectively, the “Indenture”), which were before the Board and attached to the Resolution in substantially final form at the time of adoption of the Resolution.

 

A copy of the Resolution and the indenture are on file in the office of the Issuer — where they may be examined during regular business hours at the Department of Treasury from 7:30 a.m. to 4:00 p.m. Monday through Friday, for a period of at least twenty (20) days from and after the date of publication of this notice.

 

BACKGROUND

 

Last month, Samoa News reported that Moody’s Investors Service has given an initial Ba3 rating for American Samoa’s general revenue and refunding bonds, totaling just over $72 million, according to a company rating news release yesterday, which also says that the bonds are expected to go on sale next month. (See story in July 23, 2015 publication)

 

According to investopedia.com, bonds rated Ba3/BB — are generally considered speculative in nature and are not considered to be investment-grade bonds suited for people wishing to avoid the risk of losing their principal.

 

These bonds are commonly referred to as “junk bonds”, though this rating indicates that they are towards the more stable end of the junk-bond rating spectrum, it says. Further, Ba3 is a long-term bond rating provided by the Moody's rating service, while BB — is the parallel rating provided by both the S&P and Fitch rating services.

 

To date, Samoa News should point out that S&P and Fitch, which were among the rating services that ASG officials met with to get a rating for the bonds, have not officially released their ratings of the ASG bonds.