Wednesday, October 3, 2001

Hawaii, Anaheim
bonds may face
downgrades, S&P says

The credit-ratings firm is considering
lowering the isles' AA- rating
due to the tourism decline

By Dennis Walters
Bloomberg News

New York >> Bonds backed by Hawaii and Disneyland's home, Anaheim, Calif., may face downgrades because of reduced tourism, Standard & Poor's said.

Fewer people are traveling after Sept. 11, when hijackers crashed jetliners into the World Trade Center and the Pentagon in the worst terrorist strike in U.S. history. Municipalities that rely on tourism for tax revenue may have less to pay bondholders, the rating company said.

The drop in air travel marks a reversal of fortune for Hawaii. Standard & Poor's in July raised the state's general obligation bond rating to "AA-" from "A+," citing increased tourism and an economic rebound.

The increased scrutiny comes at a time when Gov. Ben Cayetano is proposing to borrow an additional $1 billion to finance construction projects around the state. Standard & Poor's mentioned Hawaii's pending special legislative session in a release about the credit watch.

"Although reserves have recently increased in size and the budgetary balance totals $372 million, the potential impact of steep declines in tourism is large, particularly for a state unreachable by any means other than air.

"A special session has been called for October to help address the accompanying economic and revenue issues," noted the company.

"We need to get a couple of months more down the road before we really know" how much the state's finances will be hurt by reduced air travel, said Robert MacIntosh, who runs the $18 million Eaton Vance Hawaii Municipals Fund.

Anaheim, which gets about half its revenue from hotel and sales taxes, is vulnerable to a slowdown at Disneyland. Standard & Poor's said it may lower the "AA" rating on the city's general obligation bonds.

Moody's Investors Service last week cut Walt Disney Co.'s ratings for the first time in five years, citing concern attendance at its theme parks would dwindle.

Reduced tourism at the nation's capital may take a toll on bonds sold by the Washington Convention Center Authority, Standard & Poor's said. The authority's bonds are rated "AAA" based on insurance against default. Without insurance, the rating would be "BBB," according to Standard & Poor's.

Some cities and states popular with travelers have enough financial cushion to weather a slump. "I don't think you should expect every issuer that is close to water" to face a possible downgrade, said Colleen Woodell, a managing director at Standard & Poor's. "Hawaii and Anaheim are two of the extremes."

Orlando, Fla., where Walt Disney World and other theme parks are based, has "substantial" reserves, as does Florida, Standard & Poor's said.

Nevada, which along with Las Vegas and Clark County "are heavily dependent on tourism and gaming" -- experienced "sharp declines" in visits immediately after the attacks, Standard & Poor's said.

The declines are "gradually being reversed," however, according to the rating company.

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