Puerto Rico sees $600 million bond deal debuting in August

Thu Jul 18, 2013 6:32pm EDT

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* Officials say other offerings will follow

* Island's FY2012 audit report will miss July deadline

SAN JUAN, July 18 (Reuters) - Puerto Rico will return to the U.S. municipal bond market with a $600 million deal by the Puerto Rico Electric Power Authority (Prepa), with pricing expected in mid-August, a senior finance official on the Caribbean island said on Thursday.

A big issuer of tax-free bonds with about $70 billion of outstanding debt, Puerto Rico has near junk-bond credit ratings and pays the highest interest rates among large tax-free borrowers.

The U.S. commonwealth has not sold bonds in America's $3.7 trillion muni market in more than a year but has plans to refinance $3.3 billion of debt by island issuers by year's end.

Finance officials, including José Pagan, interim president-designate for the Government Development Bank who announced the Prepa offering during a teleconference, decided to go with the utility deal first because it is among the strongest government credits.

Prepa's credit rating was downgraded by Moody's Investors Service in June to Baa3 from Baa2, one step above junk. Likewise Fitch downgraded Prepa in July to BBB minus.

The Prepa deal will not depend on completion of Puerto Rico's Comprehensive Annual Financial Report (CAFR), which commonwealth officials are still completing for fiscal year 2012.

Puerto Rico officials had promised to deliver the report by July 31, but Treasury Secretary Melba Acosta told investors on the conference call it would likely take "three or four weeks" longer.

The government is awaiting audited reports from the Ports Authority and the University of Puerto Rico, which are nearly complete, Acosta said.

In May, Prepa Executive Director Juan Alicea Flores told Wall Street investors that $80 million in Prepa's construction fund would be exhausted in July.

He said the new bond issue would finance the capital works program of the new utility, which is focused on a transforming oil-burning units to natural gas and improving transmission lines.

Once the CAFR is filed, Puerto Rico will look to undertake a refinancing of $600 million of general obligations bonds, before pursuing refinancing deals for a set of public corporations, including the "bonding out" of a $2.2 billion GDB loan to the Highways & Transportation Authority (HTA).

"We want to make sure we have a good reception for the GO credit. Then, we will go with the transaction HTA," said Pagan, who was named interim president on Tuesday after the resignation of GDB President Javier Ferrer. Ferrer's resignation is official on Friday.

The government also plans to execute before year's end a refinancing of $175 million in Public Buildings Authority bonds and $400 million of Ports Authority bonds.

Pagan said the GDB had $400 million of debt maturing in 2014 and had no plans to take on more, but was instead focused on paying down its loans.

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