By stepping back from earlier plans to sell $775 million of debt before the end of June, Puerto Rico has sheltered itself from the current stormy bond market, which is tossing some of the commonwealth’s bonds in the secondary.
Early in the current fiscal year the Puerto Rico government stated plans to sell $775 million in general obligation refinancing bonds by the end of June, which is the end of fiscal 2013.
By April a Government Development Bank spokeswoman was saying that there was no timeframe for this bond sale. A GDB spokesman confirmed Friday that the government will not sell any bonds before the end of this month.
It will bring some bonds to market in September, the spokesman said.
At the Puerto Rico investor conference in mid-May, government officials said Puerto Rico and its authorities planned to sell $3.4 billion in the second half of this year, Barclays municipal strategist Tom Weyl said Friday.
The Puerto Rico Highway and Transportation Authority is to sell a large chunk of this debt. The PRHTA issue will refinance debt the authority has to the GDB and convert it into a bond debt, Weyl said.
It will be interesting to see how the GDB’s auditor reacts to the GDB’s financing of the government when it releases its fiscal 2013 audit, Municipal Market Advisors managing director Bob Donahue said.
The government recently introduced proposals to increase revenues for the PRHTA. These include a crude oil tax increase, cigarette tax, license and registration tax, Donahue said.
Puerto Rico’s plans for the second half include the $775 million GO bond financing, Weyl said.
The government needs to release its audit of fiscal 2012 before it can be successful in the bond market, Janney Capital Markets managing director Alan Schankel said.
While yields have risen sharply in the last month, Puerto Rico bonds have had a mixed performance since May 1.
Puerto Rico GO spreads to the 10 year MMD AAA have declined to 298 basis points on Thursday from 315 basis points on May 1 on the secondary market, said Municipal Market Data senior municipal strategist Dan Berger. The 30 year spread declined 43 basis points in the same period.
However, the Puerto Rico Aqueduct and Sewer Authority has slid on the secondary market. In large trades of a PRASA bond maturing in 2042 it was trading around 5.85% to 5.90% in yield to worst on June 20, Donahue said. This had slipped to 6.28% on Thursday.
Investors have also been asking for more yield for the Puerto Rico Electric Power Authority. A PREPA bond maturing in 2021 is trading at 65 basis points more than the start of June. From Wednesday to Thursday trading on the bond gained 33 basis points, Donahue said.
"As shown in recent trading since April, Puerto Rico has maintained relatively stable credit spreads on its GO debt," a spokesman for the GDB said. "We expect this trend to improve with budget approval and passing of proposed legislation to address Highways and Transportation Authority's debt."
