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NEW YORK, March 4 (Reuters) - Puerto Rico's governor signed a bill on Tuesday authorizing the sale of up to $3.5 billion of bonds, a deal that a source familiar with the matter said is likely to be priced next week.
The sale will be the first since the U.S. territory had its credit rating cut to junk status last month and should help it refinance some of its roughly $70 billion in outstanding debt.
"I am confident that this bond offering, along with amendments to the budget and our strategies to promote job creation and industrial development, will take Puerto Rico forward in a stronger fashion," Puerto Rico Governor Alejandro Garcia Padilla said in a statement.
A municipal bond market source familiar with the deal said it was expected to price "the week of March 10," but stressed that no final decision on timing had been made. The bonds will be sold through Barclays Capital, Morgan Stanley and RBC Capital Markets.
Government officials have said they intend to raise about $2.8 billion, which is expected to keep the cash-strapped U.S. territory afloat through 2015.
Moody's Investors Service last week assigned the general obligation bonds a preliminary rating of Ba2, two notches below investment grade, and listed the expected sale date as March 11.
Standard & Poor's Ratings Services rated the bonds just below investment grade at BB-plus and put the rating on watch for a possible downgrade.
Much of the money raised in the upcoming deal would go to repay and refinance outstanding debt. Some proceeds may be used to restructure GO debt service and to refund floating-rate bonds and related swap agreements.
Puerto Rico bonds are tax exempt in all 50 states, making them popular among investors. But they are still likely to require interest rates of 10 percent now that Puerto Rico's credit is considered junk by the three major rating agencies.
In addition to its high debt burden, Puerto Rico is struggling with population losses and high unemployment, the result of a nearly unbroken eight-year recession.
Since taking office a year ago, Garcia Padilla's administration has raised taxes, overhauled retirement programs and pledged to end years of operating deficits.
On Tuesday, he signed amendments to the current fiscal year budget that require the government to cut the deficit by $170 million to $650 million. Garcia Padilla has said he plans to balance the budget in fiscal year 2015, which begins in July.
Three prominent Popular Democratic Party senators - Antonio Fas Alzamora, Angel Rosa and Ramón Luis Nieves - have called for renegotiating long-term debt with the island's creditors, something the government has said is not being planned.
They said that keeping current on debt payments and operating within a balanced budget will require a $1 billion spending cut for the upcoming fiscal year.
"A reduction of this magnitude will be fatal for economic growth, which is so necessary to combat the fiscal crisis," the senators added in statement on Monday.