Bangkok--21 Jun--Standard & Poor's Standard & Poor's Ratings Services affirmed its 'B' rating on Guam's GO debt and removed it from CreditWatch with negative implications, where it was placed on March 9, 2007. The outlook is stable. The CreditWatch action was based on the general government's disclosure that it had to borrow $6 million from local banks to meet its payroll obligation for public school system employees for that pay period. In recent weeks, Gov. Felix Camacho and the current Guam Legislature were able to revise the fiscal 2007 budget to include some revenue enhancements and cost-containment measures that should improve cash flows and reduce the current budget gap. The territory, however, has a long history of structural imbalance and large accumulated deficits that will take years to reduce. Furthermore, there does not yet appear to be a consensus among elected officials for a long-term fiscal recovery plan that addresses Guam's significant long-term lack of budgetary flexibility and structural imbalance. Given the territory's history, it is unclear if officials can devise and implement a plan. The 'B' rating currently reflects these risks. The governor intends to propose a fiscal recovery plan along with the fiscal 2008 budget; the proposals should include a deficit bond financing, continued revenue enhancements, and cost-containment measures. The stable outlook reflects the expectation that the likelihood of economic growth throughout the term of the U.S. military buildup and beyond will benefit Guam and provide it opportunities to improve its financial position. "While uncertainty remains as to political willingness, any fiscal recovery plan, once identified and implemented, will address Guam's annual budget imbalance and significant long-term liabilities. We also assume the general government will at least maintain marginal cash flows that allow it to minimally operate and maintain service levels," said Standard & Poor's credit analyst Theodore Chapman. "Meanwhile, at a 'B' rating, Guam's credit can fluctuate within the highly speculative band while still meeting debt service payments." Additional credit risks include an economy that is based mainly on tourism, primarily from Asia, leaving it vulnerable to economic cycles, and the potential effect of severe weather events on the territory's economy. The government's financial position continues to deteriorate. Fiscal 2006 audited results should be available shortly; but management expects them to reflect another deficit, bringing the total general fund balance to more than a negative $520 million compared to recent revenues of roughly $430 million. Even the measures recently enacted by the revised fiscal 2007 budget have only served to close that gap not eliminate it. The rating service still has concerns regarding Guam's balance sheet, which remains plagued by long-term liabilities. The unaudited fiscal 2006 total for these liabilities is roughly $524 million. While Guam has made some progress in funding the current portions of these liabilities, management has not comprehensively identified recurring funding sources. The rating action affects roughly $117 million of GO debt. Complete ratings information is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com . All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com;under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. Media Contact: Mimi Barker, New York (212) 438-5054 [email protected] Analyst Contacts: Theodore Chapman, Dallas (1) 214-871-1401 James Breeding, Dallas (1) 214-871-1407 Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of financial market intelligence, including independent credit ratings, indices, risk evaluation, investment research and data. With approximately 8,500 employees, including wholly owned affiliates, located in 21 countries. Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit http://www.standardandpoors.com . Key Contacts: Americas Media Relations: (1) 212-438-6667 media_ [email protected] Americas Customer Service: (1) 212-438-7280 [email protected]