Puerto Rico plans to sell roughly $2.8 billion in tax-exempt general obligation bonds in March, in what would be the government's first bond sale since 2012.
Puerto Rico announced its plans Tuesday on an investor webcast. The government hasn't decided on the total size of the bond sale, which will depend on the market's reception, officials said.
The bond sale could total more than $3 billion and should address Puerto Rico's liquidity needs for the next year or two, said José Pagán, interim president of the Government Development Bank of Puerto Rico. The bond sale comes in the aftermath of downgrades of the commonwealth's GO's to junk grade by all three major ratings agencies partly on concerns over liquidity.
The sale will be used to restructure up to $600 million in fiscal year 2013 general obligation debt service, $575 million in fiscal year 2014 debt service and $175 million in fiscal year 2013 Public Building Authority debt service.
It will also be used to redeem the $333 million in COFINA BANs and refund up to $540 million in GO floating rate bonds and termination of related swaps.
It will be used for up to $245 million in current fiscal year deficit financing and $390 million in new money fiscal year 2012 and 2014 GOs. Some of it may be used for appropriation debt at the GDB and for capitalized interest and issuance expenses.
The government's most recent sales include: $333 million in Puerto Rico Sales Tax Corp. (COFINA) bond anticipation notes in May, 2013, with a maturity in September 2014; a $400 million sale of bond anticipation notes by the Highway and Transportation Authority in May 2013, with a maturity in Sept. 2014; and a $673 million sale by the Puerto Rico Electric Power Authority, which has some autonomy from the government, in August 2013.
"The appetite among opportunistic investors appears to be significant, and we see a high likelihood that a bond issue of several billion can be completed," Municipal Market Advisors managing director Robert Donahue said before the webcast.
Pagán said that in the aftermath of the downgrades, no counterparty has exercised acceleration or termination rights, though this still could happen. Puerto Rico plans to use the GO offering to refinance approximately $1.1 billion of the short-term liabilities.
Pagán defended the financial health of the GDB. He said that the market value of its investment portfolio has declined to $2.71 billion on Dec. 31, 2013, from $2.77 billion on Sept. 30, 2013. However, the portfolio's average life has declined to 2.64 years from 3.48 years, in order to increase the GDB's financial flexibility, he said. With 96% of the holdings rated better than A-minus in both September and December, the portfolio remains high-grade.
The GDB increased total deposits by $77 million during from Sept. 30 to Dec. 31, largely because a net increase of $500 million in public sector deposits, Pagán said. The GDB's senior notes' maturities are staggered over the next 14 years, reducing roll-over risk, he said. They currently peak at $876 million in 2016 and have a low value in the next seven years of $269 million in 2017.
Puerto Rico Gov. Alejandro García Padilla is proposing the creation of a new Mass Transit Authority to merge the mass transit asset of the Highways and Transportation Authority, Tren Urbano, with the Metropolitan Bus Authority and the Maritime Transportation Authority into a new entity. This should improve the HTA's financial self-sufficiency and accelerate its return to the capital markets, GBD chairman David Chafey said.
On the economic front, Alberto Bac-, secretary of the department of economic development and commerce, said that company job commitments for the island have increased from 14,000 in August to 21,000 in December.
John Paulson and Co. has promised to invest $500 million in Puerto Rico projects in 2014 and $500 million in 2015 and Putnam Bridge Investments has promised to invest $200 million in 2014, Bac- said.
In other Puerto Rico developments Tuesday afternoon, Fitch Ratings downgraded Puerto Rico Electric Power Authority power revenue bonds to BB-plus from BBB-minus. It also downgraded Puerto Rico Aqueduct and Sewer Authority bonds to BB-plus from BBB-minus.
