Five months after Puerto Rico officials talked publicly to market participants, they held an investor call on Thursday with over 2,000 people. The call was captured by Storify. Puerto Rico’s previous call in February rallied market enthusiasm for a $3.5 billion general obligation bond offering that was priced on March 8. The March deal, the largest speculative grade bond deal ever done in muniland, replenished the coffers of the fiscally debilitated island.
Now the government is hoarding that cash and taking “swift and decisive” actions to clean up its internal capital structure. It is paying back internal loans between the central government, the Government Development Bank (GDB) and public corporations. Officials said that they had eliminated virtually all interest rate swap contracts at the GDB. They outlined new revenue sources and detailed expense reductions for general government operations.
The government reiterated that it intends to “ring fence” the debts of several public corporations while protecting their constitutionally-guaranteed general obligation debt and sales tax-backed Cofina bonds. An investor group that owns about $3 billion in Puerto Rico general obligation and Cofina debt announced that it supports the government and stands ready to assist Puerto Rico with financing.
At the opening of the call, Governor Alejandro García-Padilla said “our commitment to honoring financial responsibilities of Commonwealth remains unshaken.” Officials seemed confident and committed to imposing austerity on the government’s expenses.
“We believe that rating agencies have seriously misunderstood and misrepresented the intentions of the government,” said David Chafey, president of the Board of Directors of the GDB. Chafey stated that the government had a sufficient “liquidity runway” to sustain its capital needs, but had expected to access the market again in the short term. Chafey said that the GDB is “dedicated to working on a consensual agreement with our creditors.”