Puerto Rico is set to issue tax- and revenue-anticipation notes by Sept. 30, according to Government Development Bank documents.
The struggling commonwealth, whose debt was cut deeper into junk this month, may access the capital markets “as market conditions allow, to refinance short-term maturities” and generate cash, according to documents posted today on the bank’s website. The GDB handles debt transactions for Puerto Rico, whose bonds are tax-exempt nationwide.
The sale would be the first borrowing for the island after lawmakers last month approved a debt-restructuring law that enables certain public corporations to negotiate with bondholders to reduce obligations. Puerto Rico’s general obligations and its sales-tax bonds are exempt from the new law.
“Our commitment to honoring our financial responsibilities of the commonwealth remains unshaken,” Governor Alejandro Garcia Padilla said today during a conference call with investors.
Puerto Rico and its agencies have $73 billion of debt. Commonwealth securities have been trading at distressed levels for almost a year on concern the island of 3.6 million residents, 45 percent of whom live in poverty, would be unable to repay its obligations.
The administration will work on a tax overhaul during the first half of fiscal 2015, which began July 1, the governor said. The economy, which has struggled to grow since 2006, is expected to increase by 2 percent in fiscal 2016, according to the Planning Board.
The commonwealth sold $3.5 billion of general obligations in March in the largest junk-rated municipal-bond deal ever.
Those securities, sold at 93 cents on the dollar and maturing July 2035, traded July 16 at an average of 89.19 cents, the highest since June 27, two days before Garcia Padilla filed the debt-restructuring bill, data compiled by Bloomberg show. The bonds traded at 84.39 cents on July 3, the lowest ever.
Puerto Rico can’t borrow at investment-grade prices. Moody’s Investors Service July 1 cut its $14.4 billion of general obligations by three steps to B2, the fifth-highest speculative grade, citing the new debt-restructuring law. Standard & Poor’s and Fitch Ratings also assign the island junk ratings.
The new law has erased much of this year’s gains in Puerto Rico securities. Commonwealth debt has earned 2.3 percent through July 16, down from 10.7 percent on May 30, according to S&P Dow Jones Indices. The entire $3.7 trillion municipal-bond market has earned 5.8 percent through July 16.
“We recognize that the downgrades have had an adverse impact on many of the investors who have supported us for many years,” David Chafey, chairman of the GDB, said during the conference call.
Puerto Rico officials will attempt to show the rating companies progress in reducing budget deficits and boosting economic growth, “with the goal of improving the ratings of our outstanding securities as early as possible,” Chafey said.
Brigade Capital Management LLC, Fir Tree Partners, Monarch Alternative Capital LP and Perry Capital LLC, all based in New York, have formed a group in support of the debt-restructuring law. The firms hold more than $3 billion in Puerto Rico debt combined, according to a statement released today.
With more than $60 billion of capital under management, the group “could provide a substantial source of financing in connection with the commonwealth’s effort,” the group said.
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