The Puerto Rico government, under pressure from rating agencies to demonstrate it can access capital, plans to sell long-term bonds by the end of February.
The bonds will probably be Puerto Rico Sales Tax Financing Corp. (COFINA) bonds, though no final decision has been made about this, Puerto Rico Government Development Bank interim president José Pagán Beauchamp told The Bond Buyer Thursday. The government plans to sell an undetermined amount of the bonds in late January or in February.
The Puerto Rico central government, usually a large seller of bonds, sold none last year. Instead it made private placements with Barclays, RBC Capital Markets and other banks.
The Puerto Rico Electric Power Authority, a public corporation, was alone among Puerto Rico government entities selling debt. It sold $673 million in bonds on Aug. 7 and paid as much as 7.12% for 30 year bonds.
With buyers on the secondary market asking for increasing yields, the Puerto Rican government announced in September it would reduce its bond sales in the rest of the year. In recent months, the government has repeatedly said that it has the liquidity to abstain from bond sales for the rest of the fiscal year, which ends June 30.
However, in November Fitch Ratings put Puerto Rico's general obligation BBB-minus rating under review for a possible downgrade. The rating company cited concerns over the commonwealth's ability to sell bonds at reasonable rates and said it would resolve its watch by the end of June.
Moody's Investors Service increased the pressure Dec. 11 when it put Puerto Rico's Baa3 GO bond rating on review for a downgrade.
Moody's and Fitch also put other related Puerto Rico government and public corporation bonds on review for a downgrade. Moody's followed Fitch in citing the commonwealth's ability to access the bond market as a key concern and said it planned to resolve its review within 90 days, jacking up pressure on the government to sell soon.
Puerto Rico has promised to hold quarterly web casts for investors. It plans to hold a web cast in the next few weeks and may sell the bonds shortly thereafter, Pagán said.
In related news, the Puerto Rico government cancelled a plan to reduce its sales tax rate to 6.5% from 7%. The cut would have reduced the sales tax going to municipalities to a 1% sliver from a 1.5% sliver. This will affect the central government in two ways. First, it won't have to pay municipal debt service that it had promised to pay when the sales tax rate was cut. That will save it $52 million in the current fiscal year and additional money in future years. Second, the restored 0.5% sliver will now be fed through the government's COFINA fund. This will strengthen COFINA's capabilities, said Puerto Rico secretary of the Treasury Melba Acosta Febo.
The government is also planning to introduce a municipal version of the COFINA bond, allowing municipalities to issue senior lien sales tax-backed bonds. The government is currently in discussions with legislators and mayors about this, Pagán said.
Finally, measures to regulate when public corporations could borrow from the central government have passed the Puerto Rico Senate, Acosta Febo said. The Puerto Rico House is expected to take up the measures when it comes back in session in mid-January.
