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$1.2 Billion In Prepa, Public And Municipal Finance Bond Issues
GDB Puts Best Face On Debt-Rating Downgrade
BY KEN OLIVER-MENDEZ
June 6, 2002
After a respite of several months, the government of Puerto Rico is returning to the bond market with a vengeance this month, scheduling three issues totaling $1.2 billion.
The fresh round of activity includes $300 million in debt refinancing by the Puerto Rico Electric Power Authority (Prepa), a $500 million issue by the Government Development Banks (GDB) Public Finance Corp., and a $400 million issue by the GDBs Municipal Finance Agency.
Given the favorable interest rate scenario for the Prepa refinancing, that transaction is predicted to result in $15 million in savings to the agency. The issue, which is scheduled to go to market next week, is expected to receive an A- rating from Standard & Poors and a Baa1 rating from Moodys. Goldman Sachs and FirstBank are its co-leaders.
Meanwhile, UBS PaineWebber Puerto Rico will be the lead manager for the $500 million Public Finance Corp. (PFC) issue. Popular Securities and Santander Securities will serve as senior managers. Standard & Poors and Moodys are anticipated to give the PFC issue ratings of A- and Baa3, respectively.
Rounding out the action is the $400 million Municipal Finance Agency issue, the proceeds of which will be used to fund municipal infrastructure projects islandwide. Bank of America and Oriental Financial Group are the lead managers for the issue. Popular Securities and Morgan Stanley are also participating as co-managers.
Downgrade doesnt impact, has bright side
GDB Executive Vice President and Treasurer Hector Mendez dismissed concerns that Standard & Poors (S&P) downgrading of Puerto Ricos debt rating from A to A- would put a damper on the new round of Commonwealth bond issues.
"We fully expect to see oversubscription once again," Mendez told CARIBBEAN BUSINESS, referring to the series of oversubscribed Commonwealth bond issues during the latter part of 2001 and early this year.
The bright side of the S&P downgrade, Mendez said, was that it brought with it the removal of the previous CreditWatch with negative outlook. S&P announced with the downgrade that the outlook now is stable.
"Its like when a hurricane is headed your way," Mendez explained. "It hits you, but after it passes the sky over the horizon starts to clear up." In its downgrade report, S&P indicated that the Commonwealths now stable outlook is based on expectations of balanced operations in fiscal year (FY) 2003 and of a gradual economic recovery.
According to S&P, the downgrade decision was based in large measure on the Commonwealths use of deficit financing and back loading of debt to eliminate "a large, accumulated operating deficit," including the deficit financing used to close the FY 2001 revenue gap.
In Mendez view, the downgrading of the debt rating was debatable given the steady improvement of the GDBs capitalization and liquidity. He explained that S&P officials insisted, however, on linking the GDB and the financial health of the Commonwealth government as a whole in making their decision.
This Caribbean Business article appears courtesy of Casiano Communications.