Puerto Rico May Raise Petroleum Tax to Back $2.9 Billion of Debt

Puerto Rico lawmakers are working on a plan to allow the island’s Infrastructure Financing Authority to sell as much as $2.9 billion of bonds backed by petroleum taxes to repay loans from the Government Development Bank.

The strategy involves boosting the junk-rated commonwealth’s petroleum-tax rate to $15.50 per barrel after lawmakers increased it to $9.25 last year from $3, General Assembly Representative Rafael “Tatito” Hernandez said in a telephone interview from the island.

The bill, which hasn’t been filed, would transfer the new revenue to the Infrastructure agency, called Prifa, from the Highways & Transportation Authority. Prifa, which has sold bonds backed by rum-tax revenue, would issue debt secured by the petroleum-tax receipts, Hernandez said. Prifa, unlike the roads agency, isn’t eligible to restructure its debt through a law the commonwealth passed in June.

Prifa would take on loans the highway agency owes the GDB, and repay them with the bond proceeds. The Development Bank lends cash to the commonwealth and its agencies to help balance budgets. The plan would boost the GDB’s funds and also raise revenue to support $4.6 billion of highway debt and the new Prifa bonds, Hernandez said.

“It’s going to fix the cash flow for the GDB,” Hernandez said. For bondholders, “their coverage is going to be better after we pass this bill.”

Safeguard Move

Puerto Rico is moving to safeguard its direct debt and strengthen the GDB’s balance sheet after the three largest credit-rating companies cut the U.S. territory to speculative grade in February. The commonwealth and its agencies have $73 billion of obligations, most of which are tax-free nationwide. The island’s economy has struggled to grow since 2006.

The GDB plans to hold a conference call with investors tomorrow. The bank on Oct. 17 released financial documents that included a plan for Prifa to sell bonds to repay money the Highways Authority owes the GDB.

The development bank’s net liquidity as of Sept. 30 was $1.4 billion, or $1.7 billion less than three months earlier, Ted Hampton, a Moody’s Investors Service analyst, wrote in a report this week. Without the planned Prifa sale, the GDB’s available cash would fall to $819 million, Moody’s said.

The depleted cash “could lead the commonwealth and GDB to resort to budgetary payment deferrals and other cash management tools in order to pay debt service, which would increase the risk of default and place negative pressure on the rating of the commonwealth and its related entities,” according to Hampton.

To contact the reporter on this story: Michelle Kaske in New York at mkaske@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Mark Tannenbaum, Alan Goldstein



Puerto Rico May Raise Petroleum Tax to Back $2.9 Billion of Debt

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