Financial news outlet Caribbean Business is reporting today that the Commonwealth of Puerto Rico has obtained a $2-$2.5 billion private-financing deal through Royal Bank of Canada (NYSE:RY) (TSE:RY). The sources for the article mentioned that deal involved up to a half dozen Latin American banks, including Venezuela’s Banesco, Espíritu Santo Bank from Brazil and an unnamed Panamanian bank.
According to the article, the deal was spearheaded by Francisco Xavier Gonzalez, a managing director in Royal Bank of Canada (NYSE:RY) (TSE:RY)’s U.S. Municipal, Finance Group, and the son of former Puerto Rico Governor Sila Calderon. The article also explained the reasoning behind the private financing deal: “The deal would prevent the commonwealth from having to bow down if bond markets issue terms that are too unfavorable or fail to produce sufficient demand for the $3.5 billion in debt the legislature approved raising last week.”
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Implications of the deal
A note for investors on the topic of Puerto Rico and the rumored private-financing deal was published today by BTIG research. BTIG analyst Mark Palmer says the deal means the commonwealth “…has found a backstop for its planned bond issuance and would have taken off the table the possibility of a near-term default.”
Palmer goes on to say that BTIG believes a debt issuance by Puerto Rico as high as 10% should be viewed as a positive bridge-financing maneuver that would buy time to execute on the economic reform plan implemented by Governor Alejandro Garcia Padilla. The idea is to just push things back another year or two until government revenues begin to grow substantially. Palmer says he believes that Puerto Rican government officials have finally come to terms with the fact that they will have to pay a high interest rate.
Things looking up for Puerto Rico
According to Palmer, buying time means when Puerto Rico’s economy and finances stabilize over the next couple of years, the commonwealth can then refinance the debt as a lower rate. On a positive note, Puerto Rico reported earlier today that its general fund net revenues for January 2014 were $35.9mm more than anticipated. Back in early February, Commonwealth Governor Garcia Padilla said that Puerto Rico was planning to balance its budget in fiscal 2015, a full year earlier than the original plan.
UPDATE (5:30 PM EST) – as of this writing, no deal has been confirmed yet.