New bonds in the time of the inverted yield curve
Just a few more data points on the upcoming $3 billion Puerto Rico general obligation sale expected to price on Tuesday, March 11. Note the yield curve remains inverted and likely will offer some very high yields to investors lucky enough to win bonds maturing in 2022 through 2025 (red box marks the maturities listed in the tentative sinking fund schedule below).
Here is the most recent preliminary official statement (March 6, 2014).
Here is the tentative sinking fund schedule:
The dollar amounts of the use of proceeds has not been detailed yet, but here are the broad uses (page 23):
An important part of the use of proceeds is repaying some of the deal underwriters for various short term financings and swap termination payments to Morgan Stanley, Goldman Sachs and Bank of America Merrill Lynch (page 23-24):
Market chatter is suggesting that the underwriter spread, which includes underwriting expenses, management fees for the lead underwriter and the monies paid to the dealers to sell the bond, is a rather high $10 or more per bond. We won’t know the specific amount of the underwriter spread until the final Official Statement is filed. In contrast, on Puerto Rico’s March 2012 general obligation bond deals, the underwriter spread was $6.35 and $5.61 per bond (CUSIP: 4514LD87 & 74514LZZ3).