Analysts are divided on whether Puerto Rico's unusually frank disclosures before its $3 billion bond issue scheduled for Tuesday will help or hurt the sale.
The preliminary official statement released on Thursday has 14 pages devoted to the bonds' risks and was preceded by a liquidity statement for the Government Development Bank that spelled out the need for fresh capital.
"All the disclosure required by the new issue, particularly a just-released detailed analysis of the GDB's liquidity position, has all but confirmed the market's worst fears about how tenuous the bank's solvency has been up to the present," wrote Axios Advisors managing partner Triet Nguyen, on MuniNetGuide.com.
Yet Nguyen said he had heard talk that the bond issue is already heavily oversubscribed.
Municipal Market Advisors managing director Robert Donahue looked at the POS and GDB report from a different angle. "It is much appreciated that Puerto Rico has come forward and acknowledged many of the risks that the market has been pricing," he said.
Some investors have been disillusioned with Puerto Rico because it was not acknowledging its problems. The candid discussion of risks may bring some of these investors back to purchase Puerto Rico bonds, he said.
The discussion of the risks was nothing like that found in earlier Puerto Rico bond POS's, he continued.
"I only hope this begins a dialogue going forward," Donahue said. Existing Puerto Rico bond holders as well as those considering purchasing the new bond should read the POS, he said.
"A read through the 14 pages of risk factors was certainly a clarifying experience, offering information well beyond boilerplate disclosures often found in such documents," said Alan Schankel, managing director at Janney Capital Markets. "Potential investors should read through these risks carefully to better understand the challenges faced by the commonwealth as well as bondholders."
Donahue said he was happy that the POS did not make existing bond holders subordinate to those purchasing Tuesday's bond and that it did not specify that a default would lead to an acceleration of the debt.
The GDB report released on Wednesday shows that the GDB's liquidity is "very concerning," Donahue said. On the plus side, the sale is expected to provide $1.7 billion in liquidity to the GDB.
However, the GDB report is good for Puerto Rico because it provides a lot of detailed information not available before, Donahue said. The disclosure provides Puerto Rico and the GDB with more credibility.
"I found the liquidity report very useful," Schankel said. "Amidst the various documents released by the current administration as part of its improved disclosure commitment, adequate information on liquidity has been a notable omission. This report fills a gap. I hope updated liquidity reports are regularly forthcoming."
The GDB report was very helpful but it does not have everything his group wants, said Joseph Rosenblum, AllianceBernstein director of municipal credit research.
