(Adds market activity, PREPA)
By Edward Krudy
NEW YORK, July 17 (Reuters) - Puerto Rico is fully committed to honoring its debts and expects to be able to access capital markets again possibly as soon as early 2015, officials of the U.S. Commonwealth said during a conference call on Thursday.
The call was aimed at reassuring investors after Puerto Rico passed a law allowing public corporations, such as electric power authority PREPA, to restructure their debt. The law led to a raft of debt downgrades and fears Puerto Rico may embark on full-scale restructuring of its more than $70 billion debt.
“Our commitment to honoring the financial responsibilities of the Commonwealth remains unshaken,” said Puerto Rico’s governor, Alejandro Garcia Padilla. Padilla said the law was aimed solely at reforming public corporations so they do not rely on the Commonwealth’s already strained budget.
Officials of the Government Development Bank said they expect Puerto Rico to be able to access capital markets again, possibly in 2015. To do that it will need to convince investors that restructuring will be limited to peripheral entities.
That has been in doubt in recent weeks after ratings agencies cut their outlook on core Puerto Rico debt such as general obligation and sales tax revenue bonds, citing concerns over the Commonwealth’s willingness to make good on its obligations in light of the new law.
GDB chairman David Chaffey said Puerto Rico would seek to “refinance short-term maturities and extend its liquidity horizon” in the first half of 2015. He said markets still had an appetite for the debt of Puerto Rico, which held a successful $3.5 billion bond sale in March.
“The Commonwealth will continue to protect GOs, COFINA, the GDB and other Puerto Rico credits,” Chaffey told the conference call. “The Commonwealth expects to access the market again.”
Chaffey told Reuters recently it was unlikely Puerto Rico would be able to issue debt in the current climate but that it hoped to convince investors of its continued creditworthiness.
PREPA entered a forbearance agreement with bank lenders in early July. Officials said it is in discussion with several key creditors to fix its budgetary and operational shortfall. Under that agreement PREPA has until July 31 to reach a compromise.
PREPA has a $250 million credit line with Citibank and a $550 million line of credit with ScotiaBank de Puerto Rico.
Puerto Rico’s debt has started to recover after a selloff this month.
The island’s benchmark general obligation bonds traded on Wednesday at their highest since late June after the restructuring law was passed. Debt maturing in 2035 and carrying an 8 percent coupon traded with an average price of 89.387 cents on the dollar, giving it a yield of 9.146 percent.
PREPA’s debt, although still trading at heavily distressed levels, has also rallied from lows hit this month. Bonds maturing in 2042 and carrying a 5 percent coupon traded with an average price of 46.324 cents and a yield of 11.416 percent. (Reporting by Edward Krudy; Editing by Meredith Mazzilli and James Dalgleish)