Puerto Rico bonds: downgraded, but successful

On August 10, 2011 (two days after Moody’s Monday action), Sin Comillas reported that two Public Buildings Authority (AEP) issues — one of $756 million and another that started at $225 million — won backing from local and U.S. investors. Demand let the Government Development Bank (GDB) save $13 million in financing cost, even though Moody’s had just cut the Government’s debt rating over the retirement systems.

José Otero, GDB executive vice president for financing, explained that the local $756 million issue funded the 21st Century Schools program. They initially planned to sell only $300 million, but orders reached $958 million — $200 million over the authorized maximum — so they ran the full issue. That cut the cost from 5.75% to 5.65% and, he said, represents $13 million in savings over 17 years for the program. Proceeds would modernize or build about 100 schools on the Island.

The other AEP issue, placed in the U.S. tax-exempt market (US 103), rose from $225 million to $300 million on excess demand. AEP would use those funds to repay GDB credit lines and restructure part of its debt.

Juan Carlos Batlle, GDB president, held that Moody’s adjustment “has had no effect whatsoever” on demand or cost, and that investors trust the Government’s direction. On Monday, Moody’s assigned Baa1 to general obligations — one notch below the prior April A3 — matching Fitch’s BBB+ and one step above S&P’s BBB (S&P had raised the rating in March, for the first time in 28 years). Placement success ≠ that the downgrade did not occur; cousin with the PH Moody’s note (614).

Source: Sin Comillas. https://sincomillas.com/los-bonos-de-puerto-rico-degradados-pero-exitosos/