Feb 10 Puerto Rico Governor Alejandro Garcia
Padilla has asked the legislature for approval to borrow up to
$3.5 billion with new general obligation bonds.
The request was included in a bill submitted late Friday,
hours after Moody's Investor Service became the second ratings
agency to cut the U.S. commonwealth's credit rating to junk
status. Standard & Poor's cut the island's rating to junk three
Puerto Rico, a U.S. territory, has some $70 billion in debt
outstanding, and financial markets are worried that the recent
downgrades could push it toward default, an outcome that could
roil the $3.7 trillion municipal bond market.
About 70 percent of U.S. municipal bond mutual funds hold
Puerto Rico debt because it offers high yields and is tax free
in all 50 states. Puerto Rico is not eligible to file for
Chapter 9 municipal bankruptcy protection.
Both Moody's and S&P said Puerto Rico's failure to tap the
bond market late last year heightened worries about liquidity
and contributed to the downgrades.
According to the bill, proceeds would be used in part to pay
or refinance outstanding general obligation debt as well as debt
and obligations from public corporations.
The legislation has not been approved. Betsy Nazario, a
spokeswoman for the Government Development Bank, declined to
discuss details before a teleconference scheduled for Wednesday.
Garcia Padilla was expected to give a televised address
later on Monday to detail fiscal control measures his
administration will take in the wake of the credit downgrade.
Last week, he pledged to cut the current fiscal year deficit
by $170 million and renegotiate contracts subject to nearly $1
billion in accelerated payments and increased collateral
requirements due to the credit downgrade.
The government is aiming to balance its budget in fiscal
year 2015, which begins on July 1.
Garcia Padilla's request follows recent action by the
legislature to authorize more borrowing through the Sales Tax
Financing Authority, known by its Spanish acronym, Cofina.
Cofina issues Puerto Rico's highest-rated bonds, which are
backed directly by the sales and use tax.
A source who spoke on condition of anonymity said general
obligation bonds carry a greater borrowing capacity.