Puerto Rico’s GDB borrows again
Muniland’s most closely watched issuer, Puerto Rico, borrowed last week, according to a notice filed with the Municipal Securities Rulemaking Board’s EMMA system. There was no official statement, but the securities have CUSIP identifiers.
The Government Development Bank was the obligor and there are three maturities: 2017, 2018 and 2019. The GDB is rated Baa3 by Moody’s (under review with the PR general obligation ratings). All three maturities were borrowed at 8 percent. Thomson Reuters MMD Baa3 yield curve for Baa credits was 1.95 percent for 2017, 2.39 percent for 2018 and 2.93 percent for 2019. For the 2017 maturity, Puerto Rico paid four times the benchmark rate.
Many have speculated that if Puerto Rico were to issue a third lien series of Cofina bonds, that longer maturities would have to be priced around 8 percent or higher. But given the 4 to 6-year borrowing at 8 percent that the GDB did last week, Cofina might have to price even higher, even though Cofina has stronger guarantees for repayment. The Bond Buyer reported that Puerto Rico municipalities might issue a variant of Cofina bonds:
A second measure would allow the municipalities to sell a municipal version of the COFINA (Puerto Rico Sales Tax Financing Corporation) bonds. A board of directors would include Puerto Rican mayors.
Some of the municipalities owe the Government Development Bank of Puerto Rico money. Using the new sales tax backed bonds would allow the municipalities to refinance their bonds with 30-year bonds, a government source said. This would allow the GDB to take the municipal loans off their books.
Puerto Rico municipalities have borrowed from the GDB for decades. I could only find a financial statement for San Juan, Puerto Rico’s largest city, for 2010. Couple the lack of municipal disclosure with a lack of GDB disclosure and it’s hard to see how anyone would lend into muni Confina structure.
The GDB’s most recent financials are its 2012 Financial Statement for the fiscal year ending June 30, 2012. The GDB borrowed in July at 11.75 percent with a maturity of December 15, 2013. If the GDB rolled this debt it would have been able to gain a better rate for borrowing.
Given the size of Puerto Rico’s borrowing, it’s astonishing how little information investors have on some issues. It is not a confidence-builder for a public issuer to borrow and not reveal the details of its borrowing.