Desperate Puerto Rico raises $ 1.2 billion in short-term funding


The Commonwealth of Puerto Rico has raised $ 1.2 billion in short-term funding, leaving some sources surprised at the high cost of funding.

The $ 1.2 billion financing includes $ 700 million in 7.75% term notes and a $ 200 million revolving line of credit bearing interest at one-month Libor plus 7.55%.

The Government Development Bank of Puerto Rico (GDB) issued the debt, which is guaranteed by the Commonwealth and matures on June 30, 2015. A group of banks provided the debt of $ 900 million.

“That’s a pretty punitive rate for bonds maturing within a year,” said Michael Comes, portfolio manager and vice president of research at Cumberland Advisors Inc., by telephone on Monday, October 13.

“This shows [Puerto Rico’s] desperation, and at the same time, the cost of capital once you exit the real bond market and get into private placements and loans, ”he said.

Comes is keen to see if Puerto Rico will have sufficient market access to repay the tickets in June 2015 or if it will seek to roll them over, keeping this onerous debt in its capital structure.

The GDB will use the proceeds of the offering to support the $ 900 million issuance of TRAN, or Tax and Revenue Anticipation Notes, and, as part of the funding agreement, has funded an additional $ 300 million from TRAN. , bringing total funding to $ 1.2 billion.

The banking syndicate that purchased the tickets was led by JP Morgan & Co. Morgan Stanley, Bank of America Corp., Barclays plc, Banco Popular de Puerto Rico and Amalgamated Bank also participated.

“Today’s transaction is part of normal Commonwealth funding, as it manages the time lag between outstanding budget obligations and the annual collection of tax revenue in April,” said acting GDB chairman Jose V Pagan Beauchamp, in a press release Friday, October 10. 10, adding, “We are delighted to have the support of a syndicate of leading financial institutions in this transaction.

A source following the situation believes Puerto Rico turned only to banks for the deal because it did not want to appear dependent on funding from hedge funds, which bought most of the general bond supply. Commonwealth of $ 3.5 billion in March.

This is the first time Puerto Rico has entered capital markets since the passage in June of a law creating a mechanism for restructuring public enterprises.

An ad hoc group of hedge fund investors who primarily hold general Puerto Rican bonds, GDB, COFINA and Public Buildings Authority debt have expressed interest in providing new funding to the Commonwealth.

The group, which comprises around 27 funds, owns more than $ 4.5 billion in Puerto Rican bonds and has combined assets under management of around $ 300 billion.

The source who asked not to be named expects that after this TRAN funding ends, Puerto Rico will focus on relaunching an initiative to refinance a roughly $ 2 billion loan that the GDB supplies to the Puerto Rico Highways & Transportation Authority. .

The Commonwealth introduced legislation to refinance this loan this year, and although the effort was rejected by Puerto Rican lawmakers, the source believes a revival of this plan is the next goal on the to-do list. Puerto Rico debt issuance.

The source expects the hedge funds of the ad hoc group to be interested in participating in the financing to replace this loan, and is considering debt with a general obligation collateral as well as a dedicated HTA income stream as collateral. .

The replacement of the GDB loan would help the Commonwealth by improving the liquidity of that agency, the source said.


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