NEW YORK, March 4 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
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.