The Government Development Bank for Puerto Rico has sold $3.5 billion worth of tax-exempt fixed rate General Obligation Commonwealth bonds, the agency announced. The bonds mature in 2035 and were issued at an 8.00% coupon, and an 8.727% yield.
The Commonwealth will receive approximately $3.2 billion in net proceeds from the offering, approximately $900 million of which will be used to refinance short-term obligations and swap termination payments, and approximately $400 million of which will be used to capitalize interest. The repayment of all outstanding variable rate debt of the Commonwealth (other than $126 million in outstanding CPI bonds) greatly simplifies the Commonwealth’s capital structure and reduces market and credit risk.
Remaining net proceeds will be used to refinance certain obligations of the Commonwealth and of its instrumentalities with the GDB, resulting in a liquidity infusion to the GDB of approximately $1.9 billion. GDB lines of credit repaid from bond proceeds were primarily used to finance General Fund deficits during the current and prior fiscal years.
The issue was upsized from $3 billion to $3.5 billion due to unprecedented demand; total orders, received from 270 different accounts, surpassed $16 billion, which represents more than four and a half times the bonds available for sale, the agency said.
Notwithstanding the upsizing, the Commonwealth retains approximately $900 million in GO bond capacity under the constitutional debt limit, capacity which should materially expand during fiscal year 2015 if fiscal year 2014 revenues come in line with forecasts.
“This liquidity infusion, larger than originally anticipated, strengthens the GDB’s credit profile and its role as provider of interim and long-term financing to the Commonwealth and its instrumentalities,” said GDB Interim President José V. Pagán-Beauchamp.
“With the Commonwealth’s near-term liquidity needs now substantially met and the GDB’s liquidity strengthened, we are committed to implementing our plan to achieve our stated goals and to prudently manage our resources as we continue to build a solid foundation for economic growth and development,” he said. “We are also committed to continued transparency with our investor base and open and constructive engagement with our investors.”
The bonds also have a 6-year call option at par, which will permit the Commonwealth to refinance the bonds in 2020 without premium as market conditions allow, the GDB explained.
Barclays, Morgan Stanley and RBC Capital Markets served as joint lead managers for the bond offering, with Barclays acting as lead book-running manager.
“The success of this issuance is due to the significant steps the García Padilla administration has taken since taking office in January 2013 to strengthen the Commonwealth’s credit profile, as well as the Governor’s commitment to balance the budget in fiscal year 2015,” said GDB Chairman David H. Chafey.
“This issuance will support the Commonwealth as we continue to implement our plan to make public corporations self-sufficient, create jobs, and encourage economic diversification,” he added.
Prior to going to market, the GDB told investors the transaction about all the associated risks, as this media outlet reported.
“Puerto Rico is advancing on its path towards a balanced budget in fiscal year 2015, and will continue to address its fiscal challenges in order to drive long-term and sustainable economic growth,” said Treasury Secretary Melba Acosta-Febo.
“We will continue to execute our comprehensive plan to strengthen the Treasury Department’s fiscal oversight efforts so that we achieve our fiscal and economic goals,” she said.