Puerto Rico delays $2.9 billion bond sale, says public transit may shut down

(Reuters) - Puerto Rico delayed a bond sale of up to $2.9 billion until early 2015, two finance industry sources said Monday, and the governor threatened to shut down the island's public transportation system after lawmakers revolted against a tax increase needed to back the bonds.

Governor Alejandro Garcia Padilla has been unable to muster the support of his own party, which was expected to sign off last week on the 68 percent increase in the tax on crude oil. He convened a special session of the legislature on Monday, but lawmakers swiftly called a recess until Dec. 1.

Puerto Rico needs the bond deal to boost liquidity and keep it out of capital markets for up to two years. Ratings agency Moody's Investors Service said the island faces financial trouble next year if it is unable to complete the transaction.

"The Metropolitan Bus Authority will stop Dec. 1 because there is no money to pay salaries on Dec. 15. That's the same situation with the Tren Urbano. The Maritime Transportation Authority has a few more months. We don't have money for payroll," Padilla said at a press conference. Tren Urbano is a commuter train service.

An interruption of key services would be a major escalation of the island's ongoing debt crisis. Officials said the Government Development Bank (GDB) could also cancel loans to municipal governments if the tax increase is not passed.

Lawmakers could still pass the bill this week. Under Puerto Rico's constitution the session can last up to 20 days.

Barclays has been selected as lead underwriter for the bonds. Morgan Stanley and Royal Bank of Canada are co-managers, said the sources, who had been briefed on the matter. Another source said all three banks were joint underwriters on the deal. The banks did not comment.

Officials at the GDB had said they wanted to complete the deal this year. A spokesman for the GDB did not comment.

Puerto Rico, which is struggling with more than $70 billion in debt, needs to increase its tax on crude oil by $6.25 to $15.50 per barrel to raise $178 million a year to back the bonds.

With opposition lawmakers voting against the unpopular tax measure, the bill needs support from 26 of the 28 PDP members in the House, but at least three members remain opposed, with a fourth vowing to abstain, according to local news reports.



(Reporting by Reuters in San Juan and Edward Krudy in New York; Editing by G Crosse, Bernadette Baum and Steve Orlofsky)

Puerto Rico delays $2.9 billion bond sale, says public transit may shut down