Puerto Rico’s New Finance Team Considers Pension Debt for Fund

Puerto Rico’s incoming administration may use taxable pension bonds to strengthen the worst-funded retirement system in the U.S., officials said.

Governor-elect Alejandro Garcia Padilla, a member of the Popular Democratic Party, is set to take office Jan. 2. The new administration will draft proposed changes to the pension system within one or two months, David Chafey, who will take the post of chairman of the board of directors of the Government Development Bank for Puerto Rico, said today in a call with reporters. The bank is the commonwealth’s fiscal agent.

While selling debt to increase the fund’s assets isn’t his “first choice,” Chafey said the island may use pension bonds along with unspecified changes to the system.

“It does need new sources of funding,” he said. “We need to look at that as an option.”

Puerto Rico’s pension system had assets equaling 6.8 percent of estimated retirement payments as of June 30, 2011. Illinois had a ratio of about 43 percent, the lowest among U.S. states, data compiled by Bloomberg show.

Moody’s Investors Service last week cut Puerto Rico’s credit rating to one level above speculative grade partly because of a “lack of meaningful pension reform.”

To contact the reporter on this story: Michelle Kaske in New York at mkaske@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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