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Wachovia, Puerto Rico Join Forces

Wachovia Securities will now serve as the lead manager on Puerto Rico's upcoming $1 billion general obligation refinancing, replacing the deal's former underwriter, UBS Securities LLC.

The refunding and conversion sale comes at a time while officials are also reviewing six responses to the commonwealth's request for qualifications on a potential 75-year lease on Route 22, and another upcoming taxable pension deal set to price in the island's local market.

Puerto Rico officials began looking for a new banker for the GO transaction after UBS announced in early May that it would be ending its municipal banking business. Also working on the deal are Lehman Brothers and Goldman, Sachs & Co as co-senior managers. In addition, the sale will remove the island from the auction-rate market as $200 million of the $1 billion will convert auction-rate bonds into variable rate demand bonds.

Jorge Irizarry, president of the Government Development Bank for Puerto Rico, the commonwealth's financial adviser, said the structure of the deal will remain the same and the change in firms will not tag on additional pricing expenses for Puerto Rico.

"We continue to operate with our normal costs that we had established previously with the existing syndicate and so we maintain our conditions where they were," Irizarry said. "I don't see any additional costs related to what's happened in the banking industry."

Wachovia will price the public improvement GO bonds on July 1. The deal will convert auction-rate Series 2004B1-4 bonds totaling $200 million, which are already insured by Financial Security Assurance Inc., into variable-rate mode or refinance the debt into fixed-rate bonds. In addition, Dexia SA will provide extra liquidity on the bonds.

Along with the auction-rate bonds, the commonwealth will refund a portion of its 2003 C put bonds which are currently in a fixed-rate mode but will convert into floating-rate debt on July 1 and switch a portion of the debt back into fixed-rate bonds while attaching some of the variable-rate bonds to a floating-to-fixed swap agreement that will offer the island a synthetic fixed rate.

Sidley Austin LLP is bond counsel on the deal. Puerto Rico carries Baa3 and BBB-minus ratings from Moody's Investors Service and Standard & Poor's, respectively.

Along with exiting the auction-rate market, Puerto Rico officials are working on a potential 50-year public private partnership on Route 22, the island's busiest toll road. Irizarry said the GDB received six submissions in response to the commonwealth's RFQ, although he declined to identify the interested parties, and the bank anticipates the bidding process to occur by early Fall.

Global Via Infrastructure announced in a press release that it filed a proposal with the Commonwealth on the toll road. GVI is a joint venture between Spain's FCC Construccion SA and Corporacian Financiera Caja de Madrid, and is also a potential bidder on a 78-mile toll road in South Florida known as Alligator Alley.

Among other companies in the infrastructure investment market, Australia's Macquarie Capital Group Ltd., which also responded to Florida's RFQ, declined to comment on whether it submitted a proposal on Puerto Rico's Route 22.

Patrick Rhode, vice president for corporate affairs at Cintra Concesiones de Infrastructuras de Transporte SA, said in regard to the firm bidding on Route 22 that "we are reviewing the opportunity at this time." Spain's Cintra filed a response to the potential Alligator Alley P3 in a joint consortium with Goldman.

Transurban Group from Australia did not respond to Puerto Rico or Florida's RFQ. The company, along with Goldman, was the second-highest bidder at $12.1 billion in the Pennsylvania Turnpike's 75-year concession agreement, losing out last month to the joint consortium Citi/Abertis against its $12.8 billion offer. Transurban spokeswoman, Anne Scapetis said the firm will not bid on Route 22 at this time.

"We are aware of the procurement, but at this stage do not have any plans to participate," she said.

In looking at Puerto Rico's taxable pension bond sales, the island is gearing up for another local pension deal within the next two weeks for $400 million to $500 million. Irizarry said there are no immediate plans to offer pension bonds on the mainland. Merrill Lynch & Co. is the banker on Puerto Rico's global pension bonds.

"We're looking into market conditions and we may hold investor meetings to further gage the market, but really we're still waiting to see how the market continues to improve, hopefully, [in terms of] demand, liquidity and the whole thing," Irizarry said. "So we don't have any decision yet regarding a global issuance."

This will be the island's third local pension bond deal to date, following a $1.5 billion offering in January and a $1 billion transaction in early June. As officials anticipate selling $7 billion of pension bonds, in total, the more the commonwealth's sells locally, the less it will offer in the U.S. market.

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