Puerto Rico Gov. Alejandro García-Padilla signed Tuesday legislation authorizing the issuance of $3.5 billion in general obligation (GO) bonds to be used to refinance outstanding credit lines granted by the Government Development Bank and address the government’s liquidity issues.
“We are pleased that both the Senate and the House have approved the authorization for this proposed financing, and that the governor has signed this bill into law,” said Treasury Secretary Melba Acosta-Febo and GDB Chairman David H. Chafey in a joint statement.
“We plan to use the offering proceeds principally to repay outstanding lines of credit with GDB, strengthen the GDB’s liquidity, and refinance other outstanding debt.”
“This proposed bond issuance will support Puerto Rico’s ongoing and aggressive actions to continue strengthening its fiscal position and will provide additional flexibility as the island continues its progress on economic development and job creation initiatives,” they said.
The bill authorizes Treasury to consent to New York as choice of law and jurisdiction with respect to the bonds.
joint lead managers for the upcoming GO bond issuance, with Barclays acting as lead book-running manager, government officials said.
Fitch rates GO bond issue
The governor’s move early Tuesday drew almost immediate reaction from credit ratings agency Fitch, which assigned a ‘BB’ rating to the GO issue, and affirmed the ‘BB’ rating on $10 billion of outstanding GO bonds of the commonwealth. The rating outlook is negative.
“The ‘BB’ rating on the bonds reflects demonstrated weakness in the Puerto Rico economy, very high liabilities including outstanding debt and unfunded pensions, challenged though improving financial operations, and limited financial flexibility,” Fitch said.
“The current transaction, the vast majority of which will replace existing debt rather than adding to the commonwealth’s debt load, is designed to bolster liquidity at the GDB and remove potential near-term liquidity stresses. Fitch’s rating assumes that the commonwealth will be able to address liquidity pressures through such borrowing, and the inability to do so could result in significant credit deterioration,” the agency further noted.