SAN JUAN: Puerto Rico is working on a bond sale of up to $2.5 billion to boost liquidity at the Government Development Bank (GDB), the financing arm of the struggling US commonwealth, according to sources with knowledge of the deal said on Friday.

Junk-rated Puerto Rico, saddled with a debt load of more than $70bn, wants to transfer a loan of around $2bn the GDB made to the highway authority PRHTA to the island’s infrastructure authority PRIFA. PRIFA would then securitise the debt, backed by dedicated revenues, and sell it to investors, including hedge funds, the sources said.

“The deal is very possible, but hedge funds would definitely have a big role,” said one source, a former government official and finance industry veteran.

“There are many funds willing, able and wanting to buy Puerto Rico bonds.”

The sources were finance industry insiders in San Juan who had been briefed on the matter but were not authorised to talk about it publicly.

The PRHTA deal would also include refinancing $400 million in bond-anticipation notes sold to RBC and may include $200m in variable notes the GDB brought from PRHTA. That would bring the total financing requirement to $2.5bn, the sources said.

A New York-based spokesman for the GDB declined to comment.

Puerto Rico paid a steep price to complete a $1.2bn short-term financing deal last week. It paid an interest rate of almost 8 per cent to borrow from a syndicate of banks until next June. In March it sold $3.5bn of debt in a single 2035 maturity with an 8pc coupon and a yield of 8.727pc.

Published in Dawn, October 19th, 2014