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$1.2 Billion In Prepa, Public And Municipal Finance Bond Issues

GDB Puts Best Face On Debt-Rating Downgrade


June 6, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

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 Bank’s (GDB) Public Finance Corp., and a $400 million issue by the GDB’s 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 & Poor’s and a Baa1 rating from Moody’s. 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 & Poor’s and Moody’s 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 doesn’t impact, has bright side

GDB Executive Vice President and Treasurer Hector Mendez dismissed concerns that Standard & Poor’s (S&P) downgrading of Puerto Rico’s 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.

"It’s 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 Commonwealth’s 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 Commonwealth’s 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 GDB’s 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.
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