Puerto Rico's House of Representatives passed bills authorizing a bond of up to $225 million for public works, in what would be the commonwealth's first new money issuance in more than three years.
The bills also authorized the sale of notes in anticipation of the bond sale.
The House on Thursday passed House Bill 2050 authorizing issuing the bond and House Bill 595 authorizing the distribution of the bond proceeds, according to Lilliam Maldonado, spokeswoman for Representative Santa Rodriguez.
The bond would cover public works, land acquisition for the projects, and building renovation.
The Puerto Rico government itself last sold new money bonds in July 2011, when $304 million of a $602 million public improvement general obligation sale in July 2011 went for purposes other than refunding, according to the Electronic Municipal Market Access site. There have been several subsequent new money sales by Puerto Rico authorities, including a $673 million bond in August 2013 by the Puerto Rico Electric Power Authority to finance various capital projects.
Since then, Puerto Rico's bond ratings have been cut to junk amid concern over its mounting debt and slumping economy. The commonwealth's $3.5 billion GO offering in March 2014 was the biggest municipal junk bond sale in history, with proceeds used for refinancing short term obligations and swaps termination payments and refinancing certain obligations.
Bill 595 authorizes that the money from the proposed bond would be used by a wide range of government agencies as well as municipal governments.
The bond would be sold as a general obligation bond according to a source close to the governor.
"We are adopting this measure in order to invest money and state resources in our communities and economic development,"said Rafael "Tatito" Hernández, Chairman of the House Treasury and Budget Committee.
The governor's office source said she was unsure if Gov. Alejandro García Padilla was supporting the measure. She also said the governor had suggested the bond be for $170 million.
Before the governor considers signing the bond, the Puerto Rico Senate would have to approve it.
The bond bill authorizes judicial disputes concerning the bill to be adjudicated in New York City federal courts rather than in Puerto Rico courts. Starting with Puerto Rico's March 2013 bond sale, some bond investors have sought this provision before they invest in the island's bonds.
Puerto Rico's government has already approved selling a bond for up to $2.9 billion to restore fiscal health to the Puerto Rico Highways and Transportation Authority and liquidity to the Government Development Bank for Puerto Rico. It is expected that this bond will be sold in the next few weeks.
Reuters has reported that Puerto Rico is in talks with Assured Guaranty and National Public Finance Guarantee to insure a $500 million portion of this larger bond.
"This $225 million bond deal is paltry compared to the other larger problems like Government Development Bank for Puerto Rico liquidity, the Highway and Transportation Authority's revolving loan that needs to be paid back, not to mention the Puerto Rico Electric Power Authority's problems," said Michael Ginestro, Director of Municipal Research at Bel Air Investment Advisors.
"I worry more about the GDB reliquification, the Puerto Rico Infrastructure Finance Authority loan that may or may not come, and a PREPA restructuring."
