Puerto Rico Said to Use Development Bank Cash to Repay Barclays

Puerto Rico tapped its Government Development Bank to repay a $400 million short-term loan with Barclays Plc that was due Dec. 1, according to two people familiar with the transaction.

The commonwealth, which is rated one step above junk with a negative outlook, didn’t ask Barclays to extend the loan’s maturity, said the people, who requested anonymity because the loan is private.

Puerto Rico officials have been planning to sell as much as $1.2 billion of sales-tax bonds by Dec. 31 to repay the Barclays loan and help balance budgets. Soaring yields on commonwealth securities have blocked it from selling debt through the capital markets.

Yields on Puerto Rico bonds this year jumped to record highs on investor concern that a shrinking economy will make it difficult for the commonwealth to repay its liabilities. Puerto Rico’s economic-activity index posted the 11th straight year-over-year drop in October, the GDB said yesterday.

Puerto Rico has sold debt and borrowed from the GDB and other institutions to help close recurring budget deficits. The fiscal health of the island affects the $3.7 trillion municipal-bond market because more than three-quarters of U.S. muni mutual funds hold the securities, which are tax-free nationwide.

The government-owned GDB works on the island’s market transactions and borrowings. It has an investment portfolio of about $2.2 billion, Chairman David Chafey said Nov. 6 at a Bloomberg Link conference in Manhattan.