Puerto Rico’s new general-obligation bonds have fallen to the lowest price since their sale last month after the Government Development Bank said it hired law firm Cleary Gottlieb Steen & Hamilton LLP.
The Caribbean island of 3.6 million people issued a record $3.5 billion junk deal March 11 at 93 cents on the dollar, giving it time to revive a struggling economy. The bonds traded yesterday with an average price of 92.29 cents, down from as high as 96.58 cents March 12, data compiled by Bloomberg show.
The commonwealth said yesterday that preliminary revenue tallied $6.08 billion for July through March, beating projections by $86 million. Yet corporate-tax receipts and excise-tax revenue from manufacturers not based on the island trailed estimates, according to Treasury Secretary Melba Acosta.
The GDB, Puerto Rico’s financing arm, hired Cleary Gottlieb as a legal adviser, the bank said on April 7. The law firm worked on Greece’s 2012 sovereign debt restructuring and represents Argentina in debt matters, Sonja Steptoe, a spokeswoman at Cleary Gottlieb, said in an e-mail. The firm also represented Iraq on debt issues.
Puerto Rico Governor Alejandro Garcia Padilla said April 7 at the International Economic Forum of the Americas conference in West Palm Beach, Florida, that the GDB hired Cleary Gottlieb before the bond sale to help Puerto Rico agencies understand how to avoid restructuring.
Puerto Rico and its authorities have $73 billion of debt, according to bond documents. Proceeds from the March sale went toward balancing budgets and procuring enough cash to last through at least July 2015.
Garcia Padilla said at the conference that he is days away from releasing a budget plan for the fiscal year beginning July 1. He has said the proposal won’t include borrowing to balance the budget, a practice used since at least 2000.
“We are also implementing strict measures for controlling expenses, which will set the foundation for the economic progress of the island,” Acosta said in a statement.
The commonwealth’s economy has contracted in five of the last seven fiscal years and may shrink 0.8 percent in fiscal 2014, which ends June 30, according to Puerto Rico’s Planning Board. The board last month reversed its fiscal 2013 estimate to an increase of 0.3 percent from a contraction of 0.03 percent.
Puerto Rico securities have lost value every day since April 2, paring their 2014 advance. The island’s debt has still earned 6.3 percent this year, surpassing the 3.9 percent gain for the entire municipal market, S&P Dow Jones Indices show.
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