New Regime, New Deals

Officials this week will begin a transition process in anticipation of Puerto Rico governor-elect Luis Fortuño taking office on Jan. 1, with a planned bond deal backed by delinquent tax receipts topping the list of financing issues that the new administration will need to take on.

Luis Alfaro, vice president and financing director at the Government Development Bank for Puerto Rico, said it would not sell the bonds before the end of the year. Goldman, Sachs & Co and Citi are the bankers structuring the deal with the GDB, according to Alfaro.

“I don’t think we’re going to be able to take it out to market [before the end of the year], but we are going to continue working on the structure and on the transaction and that’s one of the biggest priorities that we have to discuss with the transition committee and the new administration,” he said.

Current plans include selling $500 million of debt backed by unpaid income and corporate taxes that the government expects to collect through improved tax-collection systems. That fund could reach $2.9 billion, allowing for $1 billion of borrowing in total.

Initial bond proceeds will reimburse the GDB for recent loans that it has extended to the central government to help fill a $1 billion deficit in the island’s $9.48 billion fiscal 2009 budget, which ends June 30. The government will use $500 million of GDB funds by the end of the year to help fill that gap, according to GDB president Jorge Irizarry.

Fortuño is expected to announce the members of the transition committee this week. Alfaro said the GDB in the meantime is moving forward with plans for a $400 million Puerto Rico Municipal Financing Agency bond sale that may price after Thanksgiving.

“Were going to continue working,” Alfaro said. “It’s business as usual and we’re going to be talking to the transition committee.”

Alfaro said the GDB has already submitted a transition report to the commonwealth’s secretary of state, as required by law.

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