GDB raises more than $1B in pair of bond issues

Written by  //  August 11, 2011  //  Government  //  No comments

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GDB President Juan Carlos Batlle

The Public Buildings Authority sold more than $1 billion in bonds in the Puerto Rico and U.S. markets within the last week, which it will use to build and upgrade some 100 public schools and repay a credit line it has with the Government Development Bank, GDB President Juan Carlos Batlle said Wednesday.

Locally, the agency sold $756 million, or the totality of the bonds available, while the U.S. exempt market picked up another $225 million, Batlle said. Because the demand exceeded the government’s expectations, it was able to reduce the associated interest rates, thus saving some $13 million in financing costs.

The positive response to the bond emission seems to somewhat contrast what is happening in across stateside markets, which on Wednesday plummeted sharply for the second day in a row. Furthermore, the transaction was apparently unaffected by last week’s decision by Moody’s Investors Service to downgrade Puerto Rico’s credit rating by a notch, to ‘Baa1.’

“This clearly puts into evidence what I reiterated Monday, that Moody’s decision has not had an effect neither over the demand by investors for Puerto Rico bonds, nor over the cost of financing them,” Batlle said.

The breakdown
The first of the two bond emissions took place last week, when the PBA turned to the local bond market to raise part of the $300 million the government needed to finance the construction and school improvement project, Batlle explained.

At the end of business last Friday, the PBA had received $833 million in offers, of which the government cashed in on $756 million to cover the maximum amount assigned by the federal government for the projects. Initially, the PBA was offering the bonds at a 5.75 percent interest rate, but following the credit downgrades in Puerto Rico and the U.S. mainland, the GDB was able to negotiate the rate down to 5.65 percent, which resulted in the $13 million savings, Batlle said.

“That’s the savings the government will get throughout the life of the bonds, which is 17 years. This is a clear sign that we’re getting the support of the capital market,” the public servant noted.

Meanwhile, the second bond issue, which went to market Monday, also through the PBA, originally sought to raise $225 million, but demand pushed the final amount to $300 million. This time, the bonds were placed in the U.S. 103 exempt market.

The agencies will be using the greater portion of the funding to restructure and repay credit lines, Batlle said, of the bonds that have a lifespan of between 11 and 30 years.

“What we’re seeing today reiterates what we said before, that these are big investment companies that continue to support our credit, and would not be buying Puerto Rico bonds if there was a concern about the security that they offer,” Batlle said. “This is a very important sign, a pat in the back from the markets to Puerto Rico.”

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