Puerto Rico officials yesterday
Carlos Garcia, president of the Government Development Bank for Puerto Rico, hosted the conference call and stressed to the group that while the island faces a $3.2 billion deficit in the current fiscal 2009 budget and a prolonged recession, the new administration will implement budget reforms while at the same time setting the stage for economic growth through public-private partnerships.
"We believe that we have a total understanding of where we are," Garcia said to investors. "The challenges are formidable, but so will be the responses that we'll provide toward these challenges in order to commit to a reconstruction of Puerto Rico. Basically, there are no excuses, this is just basically a recognition of a problem and working to provide not only short-term but long-term solutions."
Last month, officials announced a plan to sell additional sales-tax bonds to help address the deficit and support a $500 million local stimulus package. Garcia said the forthcoming sales-tax debt will be subordinate to $5.2 billion of existing sales-tax bonds.
While the $5.2 billion of debt is backed by a dedicated 1% of the island's 7% sales tax, an additional 1% allocation will support the new sales-tax bonds. However, the senior sales-tax bonds will have access to the full 2% dedication before officials pay down the subordinate debt.
"Now you would have the 2% or $400 million that will be deposited into that account and existing [sales-tax] bondholders will have a first shot at that," Garcia said. "So basically we're doubling the direct covers to the existing [sales-tax] bond holders. Then the new bondholders will get the remaining portion of that, technically being the $200 million, and then you will still have the support of the remaining 3.5% that is outside of the segregated account."
The GDB will review underwriting proposals next week, as applications are due Friday. Along with the $500 million local stimulus plan and closing the current deficit, the bond proceeds could pay $2.2 billion of debt the government owes the GDB. Garcia said pricing depends on market conditions, with the bank to issue several deals of roughly $250 million during the next 18 months.
"I think we have to assume that this is going to be a financing plan that will take as long as 18 months to carry out," Garcia told The Bond Buyer after the investor call. "We hope that we're surprised and we can do larger deals, but we are focusing on doing $250 million. If the market believes that we can do more, then we'll do more."
Other immediate help will come from the anticipated federal stimulus package, with Puerto Rico expecting to receive nearly $5.5 billion in total from that plan, Garcia said. The federal dollars will help the island as total revenues for fiscal 2009 are projected to come in roughly $887 million below budget, a 10% drop. In addition, the commonwealth will begin implementing zero-based budgeting, with fiscal plans to span over multiple years.
"We have to elaborate long-term budgets to bring about more stability to the fiscal planning process," Garcia said. "We need to be able to balance the needs of the short term with the results and consequences of the actions that we take in the short term in order to stabilize the economy."
