Puerto Rico's legislature has voted to remove the limits on the discount for a planned oil tax bond after yields on the commonwealth's general obligation debt rose.
In mid-January the Puerto Rico government adopted a measure to sell a bond up to $2.95 billion in size. The measure hiked taxes on imported oil to support the Puerto Rico Infrastructure and Finance Authority sale of the bond.
As part of the bond, the Senate included provisions whereby the coupon could be no higher than 8.5% and the price no lower than 93 cents on the dollar. On Monday and Tuesday the Puerto Rico Senate and House of Representatives voted to eliminate the floor on the price.
Secondary market yields on Puerto Rico general obligations have traded over 10% for some maturities since Friday, when a federal judge ruled that local bankruptcy law for public corporations was unconstitutional.
The governor hasn't signed the bill to eliminate the limit on the discount and probably has not even yet received the bill from the legislature. However, a source close to the governor said she believed he supports the measure.
The proceeds from the bond will be used to primarily to pay the debt of the Puerto Rico Highways and Transportation Authority to the Government Development Bank for Puerto Rico. In this way it will kill at least two birds with one stone - remove financial strain from the PRHTA and improve the GDB's liquidity.
