On its first trip to the market in over a year, the Puerto Rico Electric Power Authority completed Wednesday a $673.1 million municipal bond deal, exceeding the initial $600 million goal, which was raised due to “strong investor demand,” Government Development Bank for Puerto Rico Interim President José Pagán-Beauchamp said.
The sale was oversubscribed two-fold with orders totaling more than $1.5 billion, the GDB official said.
Given the strong demand, some of the long-term, higher-yield principals were successfully restructured to shorter, lower-yield maturities to reduce the total cost of the financing. In addition, the rates were reduced up to three basis points to achieve a 6.73 percent yield on the shortest maturity bonds (2030) and 7.12 percent on the longest maturity bonds (2043). Moody’s, Standard & Poor’s and Fitch rated the bonds “Baa3”, “BBB” and “BBB-,” respectively. Morgan Stanley was the lead manager and Wells Fargo was co-lead manager.
“We are very pleased with the reception of this issue. We are excited to be back in the municipal market as we make way to execute the next transactions in our financing plan,” Pagán-Beauchamp said.
“The success of this issue reflects the importance of meeting with investors to explain PREPA’s strategic plan and emphasizing the fiscal transparency of government. We must underscore that this deal will improve the liquidity of the Commonwealth paper in the secondary market,” he said.
Even though the transaction took place in a very volatile market environment, marked by a lower demand for municipal bonds due to significant bond fund outflows and in the shadow of Detroit’s bankruptcy, investors successfully received it, the GDB said.
“Investor support and excitement for this issue prove investors support Puerto Rico’s credit and the fiscal measures implemented by this administration. More than 60 institutional investors as well as retail investors bought PREPA bonds, clearly demonstrating access to market for Commonwealth issuers,” Pagán-Beauchamp said.
The funding will be used to float PREPA’s capital improvements program and to secure the continuance of “much needed infrastructure investment,” he said.
“Investing in infrastructure will strengthen the service provided by PREPA and will create jobs. It also assures PREPA can continue its plan to convert to LNG and reduce the cost of electricity for consumers. This is another positive factor that will improve economic activity, which is key to our fiscal health and credit,” Pagán-Beauchamp concluded.