Puerto Rico/NEW YORK Nov 14 (Reuters) - Puerto Rico is in talks with four bond insurers to insure at least part of up to $2.9 billion in bonds the troubled U.S. commonwealth wants to issue later this year, the president of the Government Development Bank (GDB) said on Friday.
The move would allow Puerto Rico to access a far deeper pool of capital in the $3.7 trillion municipal bond market than the relatively small group of hedge funds that bought $3.5 billion of its debt in March. It would also significantly lower Puerto Rico's heavy borrowing costs.
Puerto Rico wants to refinance a $2.2 billion loan the GDB made to the island's Highways and Transportation Authority (HTA) in a bid to shore up the commonwealth's precarious finances and buy it time to turn around its flagging economy.
In order to complete the sale, Puerto Rico needs to pass legislation to increase a tax on oil by $6.25 per barrel to $15.50. That would generate $178 million in revenue to back the bonds. The bonds are expected to be issued by the Puerto Rico Infrastructure Financing Authority (PRIFA).
"The four insurance companies that insure HTA bonds saw the legislation and commented on it, and part of those discussions were whether we could insure a part of the transaction, not necessarily the whole thing, to get better rates," GDB President Melba Acosta-Febo said.
Two financial industry sources in San Juan said Puerto Rico believes the insured bonds would get an A-rating, much higher than the island's current BB junk rating.
Acosta-Febo did not name the insurers, but the GDB said last month it discussed the legislation with Assured Guaranty Ltd , Ambac Financial Group Inc, National Public Finance Guarantee Corp and FGIC Corp. Those discussions had been "constructive," it said.
A spokesman for MBIA Inc, which owns National Public Finance Guarantee, declined to comment. The other three insurance firms did not return requests for comment.
Insuring the bonds could also benefit insurers by preventing a default at the HTA, said Triet Nguyen, an municipal bond analyst at Axios Advisors.
The four insurers back over 70 percent of certain HTA revenue bonds. The HTA has over $7 billion in total debt, including lines of credit. Insurers are already facing possible losses at the Puerto Rico Electic Power Authority. (Reporting by Reuters in San Juan and Edward Krudy in New York; Editing by Tom Brown and Andre Grenon)
Puerto Rico seeks to insure new bonds -government bank
Monday, November 17, 2014
Sunday, November 16, 2014
Puerto Rico Revenues 1% Over Projections in October
Puerto Rico's net General Fund revenues came in 1% above expectations in October.
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Puerto Rico Revenues 1% Over Projections in October
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Puerto Rico Revenues 1% Over Projections in October
Puerto Rico's tax collection gap narrows in October -Treasury
Puerto Rico's Treasury tax collections were a touch above estimates in October, slightly narrowing the struggling U.S commonwealth's year-to-date tax collection gap, according to a report from Puerto Rico's Treasury on Wednesday.
Tax collections totaled $676 million in October, $7 million above official estimates. That narrowed the gap between year-to-date actual revenues and estimates to $29 million, or 1.2 percent, from $36 million, or 2 percent in September.
Debt-laden Puerto Rico passed its first balanced budget in years for the current financial year and any slip in tax revenue could jeopardize that goal. Puerto Rico has been in or near recession for the last 8 years.
The main driver of collections in October was individual income tax revenue, which totaled $259 million, a year-over-year increase of $100 million, the Treasury said.
Increased collections in income tax were due to rules that established a temporary period for some taxpayers to prepay tax on individual retirement accounts and other assets at a reduced rate. Revenues from these transactions totaled $103 million in October, the Treasury said.
Despite beating forecasts, revenues in October fell by 21 percent, or $195.6 million, compared to October last year. The Treasury attributed the decline to $237 million in non-recurring revenues in corporate income tax and non-resident withholdings in October 2013. (Reporting by Edward Krudy; Editing by James Dalgleish and Meredith Mazzilli)
Puerto Rico's tax collection gap narrows in October -Treasury
Tax collections totaled $676 million in October, $7 million above official estimates. That narrowed the gap between year-to-date actual revenues and estimates to $29 million, or 1.2 percent, from $36 million, or 2 percent in September.
Debt-laden Puerto Rico passed its first balanced budget in years for the current financial year and any slip in tax revenue could jeopardize that goal. Puerto Rico has been in or near recession for the last 8 years.
The main driver of collections in October was individual income tax revenue, which totaled $259 million, a year-over-year increase of $100 million, the Treasury said.
Increased collections in income tax were due to rules that established a temporary period for some taxpayers to prepay tax on individual retirement accounts and other assets at a reduced rate. Revenues from these transactions totaled $103 million in October, the Treasury said.
Despite beating forecasts, revenues in October fell by 21 percent, or $195.6 million, compared to October last year. The Treasury attributed the decline to $237 million in non-recurring revenues in corporate income tax and non-resident withholdings in October 2013. (Reporting by Edward Krudy; Editing by James Dalgleish and Meredith Mazzilli)
Puerto Rico's tax collection gap narrows in October -Treasury
Only Economic Growth Can Fund Puerto Rico Long-Term Costs
Although liquidity and fiscal concerns are weighing on the credit quality of the commonwealth of Puerto Rico (BB/negative), underlying economic trends are the root cause of the island's credit problems, according to a report published by Standard & Poor's Ratings Services.
Only Economic Growth Can Fund Puerto Rico Long-Term Costs
Only Economic Growth Can Fund Puerto Rico Long-Term Costs
Puerto Rico Sales-Tax Switch Leaves Muni Buyers in Dark
Investors holding Puerto Rico’s $15 billion of sales-tax bonds, the struggling island’s main financing tool since 2006, are being left in the dark as officials work to expand the levy.
Officials are looking to swap a 7 percent sales tax for a value-added levy at each phase of a product’s distribution, part of a strategy to cut personal and corporate-income taxes, the commonwealth’s Government Development Bank said on an Oct. 30 investor call. The changes are intended to boost revenue and an economy that’s struggled to grow for almost nine years.
Although the bonds account for 20 percent of the island’s debt, lawmakers haven’t filed a bill outlining potential changes, and the GDB hasn’t released the rate for the new levy or an estimate of how much revenue it would generate. Investors want more details before buying or selling, said Robert Amodeo, who helps oversee $30 billion at Western Asset Management Co.
“There’s not a lot of selling pressure, but there’s really no one stepping up to buy it either,” said Amodeo, head of munis in New York. “There’s just not enough information in the market to take a strong position.”
Borrowings from Puerto Rico, which are tax-exempt nationwide, have traded at distressed levels for more than a year on concern that the commonwealth and its agencies won’t be able to repay $73 billion of debt.
An index tracking the economy has shrunk by about 19 percent since July 2005, according to the GDB. Standard & Poor’s said in a release today that it may lower Puerto Rico’s rating again in the coming year if a weakening economy causes a “significant” budget deficit.
The territory’s securities have lured hedge funds seeking junk yields, helping Puerto Rico beat the bonds of all but one U.S. state. Securities from the commonwealth have gained about 12 this year, beating the broader market’s 8 percent advance, according to Barclays Plc data. Only South Dakota’s 14 percent return is better among states.
Moody’s and Fitch rate senior Cofina debt three steps below investment grade. S&P ranks the credit two steps above junk.
The commonwealth is allowed to replace the tax receipts securing the bonds with a different revenue stream, according to bond documents. Yet it’s rare in the municipal market for obligors to switch the pledge behind so much debt, said Bob Donahue, managing director at Concord, Massachusetts-based research firm Municipal Market Advisors.
“I can’t think of too many bonds -- especially ones with $15 billion outstanding -- that have gone through such a massive restructuring of the security pledge,” he said.
Receipts would probably increase with a value-added tax, based on modeling by KPMG LLP, because the levy would be imposed at each stage of production and distribution, Acosta said in an e-mail.
The new approach “is expected to generate significantly more revenue than is currently generated by the current sales and use tax,” Acosta said in the e-mail.
Investors agree. A value-added tax on distributors and suppliers should boost revenue by reducing evasion, Amodeo and Donahue said.
“You’re not hitting Mom and Pop at the end of the chain,” Donahue said. “You’re hitting the companies and they can only hide so much.”
“If it broadens the goods and services that are subject to the tax that pays the bonds, that should be a positive,” said Bill Black, who manages Invesco Ltd.’s $7.3 billion High Yield Municipal Fund in Oakbrook Terrace, Illinois.
That optimism has yet to filter through to trading.
The most actively traded Cofinas in the past week, securities maturing in August 2046, changed hands today at an average price of about 80 cents on the dollar, to yield about 6.5 percent, or 3.5 percentage points above benchmark munis, data compiled by Bloomberg show. The price is below the 2014 peak of 87.3 cents on May 23.
Without knowing the new tax rate and estimated receipts, it’s difficult for investors to decide on the bonds, Black said.
“It does certainly make us cautious about either adding or reducing our position,” Black said. “We just don’t have enough information.”
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, Mark Schoifet
Puerto Rico Sales-Tax Switch Leaves Muni Buyers in Dark
Officials are looking to swap a 7 percent sales tax for a value-added levy at each phase of a product’s distribution, part of a strategy to cut personal and corporate-income taxes, the commonwealth’s Government Development Bank said on an Oct. 30 investor call. The changes are intended to boost revenue and an economy that’s struggled to grow for almost nine years.
Although the bonds account for 20 percent of the island’s debt, lawmakers haven’t filed a bill outlining potential changes, and the GDB hasn’t released the rate for the new levy or an estimate of how much revenue it would generate. Investors want more details before buying or selling, said Robert Amodeo, who helps oversee $30 billion at Western Asset Management Co.
“There’s not a lot of selling pressure, but there’s really no one stepping up to buy it either,” said Amodeo, head of munis in New York. “There’s just not enough information in the market to take a strong position.”
Cofina Reliance
Slowing issuance across the $3.7 trillion municipal market is also making bondholders reluctant to reduce holdings. Puerto Rico has relied on the sales-tax bonds, known by the Spanish acronym Cofina, since lawmakers implemented the levy in 2006. The debt’s credit ratings are higher than the island’s general-obligation grade.Borrowings from Puerto Rico, which are tax-exempt nationwide, have traded at distressed levels for more than a year on concern that the commonwealth and its agencies won’t be able to repay $73 billion of debt.
An index tracking the economy has shrunk by about 19 percent since July 2005, according to the GDB. Standard & Poor’s said in a release today that it may lower Puerto Rico’s rating again in the coming year if a weakening economy causes a “significant” budget deficit.
The territory’s securities have lured hedge funds seeking junk yields, helping Puerto Rico beat the bonds of all but one U.S. state. Securities from the commonwealth have gained about 12 this year, beating the broader market’s 8 percent advance, according to Barclays Plc data. Only South Dakota’s 14 percent return is better among states.
Junk Drop
Ratings companies dropped Puerto Rico to speculative grade in February. After lawmakers passed legislation in June that would allow certain public agencies -- excluding Cofina debt -- to ask bondholders to take a loss, Moody’s Investors Service and Fitch Ratings also cut the sales-tax bonds to junk.Moody’s and Fitch rate senior Cofina debt three steps below investment grade. S&P ranks the credit two steps above junk.
The commonwealth is allowed to replace the tax receipts securing the bonds with a different revenue stream, according to bond documents. Yet it’s rare in the municipal market for obligors to switch the pledge behind so much debt, said Bob Donahue, managing director at Concord, Massachusetts-based research firm Municipal Market Advisors.
“I can’t think of too many bonds -- especially ones with $15 billion outstanding -- that have gone through such a massive restructuring of the security pledge,” he said.
No Hiding
Any changes to the tax would protect the Cofina revenue and pledge, Melba Acosta, GDB’s president, said on the Oct. 30 call. Puerto Rico expects to collect $1.4 billion of sales-tax receipts in the year through June 2015. The first $670 million goes toward debt service, with the remainder flowing to the general fund.Receipts would probably increase with a value-added tax, based on modeling by KPMG LLP, because the levy would be imposed at each stage of production and distribution, Acosta said in an e-mail.
The new approach “is expected to generate significantly more revenue than is currently generated by the current sales and use tax,” Acosta said in the e-mail.
Investors agree. A value-added tax on distributors and suppliers should boost revenue by reducing evasion, Amodeo and Donahue said.
“You’re not hitting Mom and Pop at the end of the chain,” Donahue said. “You’re hitting the companies and they can only hide so much.”
Broader Base
Retailers that don’t impose the sales tax or fail to report receipts reduce the government’s revenue. The tax’s collection rate has historically been about 60 percent, according to Moody’s. Puerto Rico last year budgeted a capture rate of 88 percent on highly regulated companies and 68 percent for other businesses, S&P said in an October 2013 report.“If it broadens the goods and services that are subject to the tax that pays the bonds, that should be a positive,” said Bill Black, who manages Invesco Ltd.’s $7.3 billion High Yield Municipal Fund in Oakbrook Terrace, Illinois.
That optimism has yet to filter through to trading.
The most actively traded Cofinas in the past week, securities maturing in August 2046, changed hands today at an average price of about 80 cents on the dollar, to yield about 6.5 percent, or 3.5 percentage points above benchmark munis, data compiled by Bloomberg show. The price is below the 2014 peak of 87.3 cents on May 23.
Without knowing the new tax rate and estimated receipts, it’s difficult for investors to decide on the bonds, Black said.
“It does certainly make us cautious about either adding or reducing our position,” Black said. “We just don’t have enough information.”
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, Mark Schoifet
Puerto Rico Sales-Tax Switch Leaves Muni Buyers in Dark
Wednesday, November 12, 2014
Herbalife Announces Sponsorship of the Ken Pick Scholarship During SOMOS Conference in Puerto Rico
Herbalife (HLF), a leading global nutrition company, recently announced a $22,500 donation to the scholarship program SOMOS El Futuro, which places Hispanic students in professional internships within the New York state government to work on health, well-being and financial literacy related issues.
The Ken Pick SOMOS Fellowship and Scholarship program was created in memory of Ken Pick, a Cuban American advocate dedicated to improving the lives of the Hispanic and Puerto Rican communities in New York—a mission shared by Herbalife.
“We are honored to offer Hispanic and Puerto Rican students the opportunity to gain work experience that will allow them to build on their professional and academic skills, as well as work on behalf of the Latino community,” said Angela Arboleda, Vice President of government and community affairs, Herbalife. “Through the SOMOS El Futuro Scholarship Program we want to remember Ken Pick and the years of unconditional service and work he dedicated to his community, as well as honor his family. Ken Pick continues to be a role model for Hispanic youth.”
Ken Pick dedicated the majority of his career and life to advocating for the issues most important to the Latino and Puerto Rican communities in New York, including education and economic development. His commitment to the Latino community led him to work closely with the New York State Assembly, the Department of Education, the Empire State Economic Development Corporation, and prior to his death, as Executive Director of the Puerto Rican and Hispanic Taskforce in the New York State Assembly and Senate.
About Herbalife Ltd.
Herbalife Ltd. (HLF) is a global nutrition company that sells nutrition, weight-management, and personal care products committed to supporting a healthy lifestyle. Herbalife products are sold in more than 90 countries are available exclusively to and through a network of independent distributors. The company supports the Herbalife Family Foundation (HFF) and its Casa Herbalife programs to help bring good nutrition to children in need. The Herbalife website, http://ir.Herbalife.com, is a repository for the company’s financial information, and provides additional information for investors about Herbalife. The company invites shareholders to visit this portal frequently as the information is constantly updated or published.
Thursday, November 06, 2014
Enphase Energy Partners with New Energy Consultants in Puerto Rico
PETALUMA, Calif. & SAN JUAN, Puerto Rico, Nov 05, 2014 (BUSINESS WIRE) -- Enphase Energy, Inc. ENPH, -6.97% and Puerto Rico’s New Energy Consultants announced today that they have entered into a strategic partnership to bring affordable solar energy to residential and commercial customers in Puerto Rico and the Caribbean markets. The partnership calls for Enphase® Microinverter Systems to be installed in 100 percent of residential systems deployed by New Energy in Puerto Rico and the Caribbean. Local distributor Warren del Caribe, a Sonepar company, will provide logistics.
“We want to align ourselves with the world leader in microinverter technology,” said Vale Aldamuy, president of New Energy. “The Enphase system offers greater productivity and efficiency in renewable energy equipment, a solid warranty, easy installation and lower overall cost of ownership. This partnership with Enphase Energy will help accelerate solar adoption in our region.”
“As a dynamic and fast-growing company in the region, New Energy has been a visionary in leading the early adoption of AC solar in Puerto Rico and championing the EnphaseMicroinverter System for several years,” said Jeff Loebbaka, senior vice president of sales, marketing and support for Enphase. “We are committed to working with local partners like New Energy and Warren del Caribe to support the development of the Puerto Rican and Caribbean solar markets.”
“Warren del Caribe is proud to be an Enphase authorized distributor,” said Kris Koch, business development manager at Warren del Caribe. “We are committed to providing the best microinverter solutions in the marketplace and are continually expanding and improving our solutions. Enphase’s microinverter system is especially beneficial in the Caribbean region because it is compatible with multiple grid types and parameters that would prove challenging for any other single microinverter.”
Because of its modularity, simplicity of installation, advanced monitoring and remote diagnostics, the Enphase Microinverter System brings increased operational efficiency and scalability to rapidly growing solar companies like New Energy. Since many solar installers throughout the Caribbean realize the advantages of working with a single microinverter SKU, distributors such as Warren de Caribe can lower their operating costs thanks to simplified logistics and inventory management.
About Enphase Energy, Inc.
Enphase Energy delivers microinverter technology for the solar industry that increases energy production, simplifies design and installation, improves system uptime and reliability, reduces fire safety risk and provides a platform for intelligent energy management. Our semiconductor-based microinverter system converts energy at the individual solar module level and brings a systems-based, high technology approach to solar energy generation. Connect with Enphase on Facebook and follow us on Twitter. www.enphase.com.
About New Energy Consultants
Since 2008, New Energy Consultants, a native Puerto Rican company, has been engaged in the design, installation and sale or lease of solar photovoltaic systems to residential and commercial customers. It has a corporate office and three branches (sales centers) at Ponce, Bayamón, and San Juan, and will soon open offices at Mayaguez and Caguas. With its unique approach and expertise in the region’s solar industry, New Energy has created 20 direct jobs and 60 indirect jobs in Puerto Rico. Connect with New Energy on Facebook.
About Warren del Caribe
Warren del Caribe is committed to providing customers with the greatest variety and quantity of PV inventory in the Caribbean and Central America, a one-stop shop for all the PV DC as well as AC components and materials for a complete bill-of-materials supply solution. With infrastructure (inventory, logistics and sales personnel) in Miami, Puerto Rico, Dominican Republic and Panama, Warren makes supplies more accessible to customers whatever their location, allowing them to more easily obtain what they need. As a 100-percent wholly owned subsidiary of Sonepar USA, which has $7 billion in total sales, Warren is an authorized stocking distributor for key best-in-class international manufacturers such as Enphase. Delivering optimal value to installers and end-users in terms of both our products and our pre- and post-sales support, our endgame is to make customers more profitable. That’s our job.
Enphase Energy®, the Enphase logo and other trademarks or service names are the trademarks of Enphase Energy, Inc.
SOURCE: Enphase Energy, Inc.
Enphase Energy
Michelle Taylor, +1 707-763-4784
Senior Manager, Global Corporate Communications
pr@enphaseenergy.com
Copyright Business Wire 2014
Partnership addresses growing demand for affordable solar energy in Puerto Rico and Caribbean markets
Enphase Energy Partners with New Energy Consultants in Puerto Rico
“We want to align ourselves with the world leader in microinverter technology,” said Vale Aldamuy, president of New Energy. “The Enphase system offers greater productivity and efficiency in renewable energy equipment, a solid warranty, easy installation and lower overall cost of ownership. This partnership with Enphase Energy will help accelerate solar adoption in our region.”
“As a dynamic and fast-growing company in the region, New Energy has been a visionary in leading the early adoption of AC solar in Puerto Rico and championing the EnphaseMicroinverter System for several years,” said Jeff Loebbaka, senior vice president of sales, marketing and support for Enphase. “We are committed to working with local partners like New Energy and Warren del Caribe to support the development of the Puerto Rican and Caribbean solar markets.”
“Warren del Caribe is proud to be an Enphase authorized distributor,” said Kris Koch, business development manager at Warren del Caribe. “We are committed to providing the best microinverter solutions in the marketplace and are continually expanding and improving our solutions. Enphase’s microinverter system is especially beneficial in the Caribbean region because it is compatible with multiple grid types and parameters that would prove challenging for any other single microinverter.”
Because of its modularity, simplicity of installation, advanced monitoring and remote diagnostics, the Enphase Microinverter System brings increased operational efficiency and scalability to rapidly growing solar companies like New Energy. Since many solar installers throughout the Caribbean realize the advantages of working with a single microinverter SKU, distributors such as Warren de Caribe can lower their operating costs thanks to simplified logistics and inventory management.
About Enphase Energy, Inc.
Enphase Energy delivers microinverter technology for the solar industry that increases energy production, simplifies design and installation, improves system uptime and reliability, reduces fire safety risk and provides a platform for intelligent energy management. Our semiconductor-based microinverter system converts energy at the individual solar module level and brings a systems-based, high technology approach to solar energy generation. Connect with Enphase on Facebook and follow us on Twitter. www.enphase.com.
About New Energy Consultants
Since 2008, New Energy Consultants, a native Puerto Rican company, has been engaged in the design, installation and sale or lease of solar photovoltaic systems to residential and commercial customers. It has a corporate office and three branches (sales centers) at Ponce, Bayamón, and San Juan, and will soon open offices at Mayaguez and Caguas. With its unique approach and expertise in the region’s solar industry, New Energy has created 20 direct jobs and 60 indirect jobs in Puerto Rico. Connect with New Energy on Facebook.
About Warren del Caribe
Warren del Caribe is committed to providing customers with the greatest variety and quantity of PV inventory in the Caribbean and Central America, a one-stop shop for all the PV DC as well as AC components and materials for a complete bill-of-materials supply solution. With infrastructure (inventory, logistics and sales personnel) in Miami, Puerto Rico, Dominican Republic and Panama, Warren makes supplies more accessible to customers whatever their location, allowing them to more easily obtain what they need. As a 100-percent wholly owned subsidiary of Sonepar USA, which has $7 billion in total sales, Warren is an authorized stocking distributor for key best-in-class international manufacturers such as Enphase. Delivering optimal value to installers and end-users in terms of both our products and our pre- and post-sales support, our endgame is to make customers more profitable. That’s our job.
Enphase Energy®, the Enphase logo and other trademarks or service names are the trademarks of Enphase Energy, Inc.
SOURCE: Enphase Energy, Inc.
Enphase Energy
Michelle Taylor, +1 707-763-4784
Senior Manager, Global Corporate Communications
pr@enphaseenergy.com
Copyright Business Wire 2014
Partnership addresses growing demand for affordable solar energy in Puerto Rico and Caribbean markets
Enphase Energy Partners with New Energy Consultants in Puerto Rico
Xiaomi Makes a Profit on Its Cheap Smartphones
HONG KONG—Chinese smartphone maker Xiaomi Inc., which was founded just four years ago, already is among the world’s largest smartphone makers.
Now a confidential document viewed by The Wall Street Journal shows that Xiaomi’s net profit nearly doubled last year, making it a lucrative business in an industry where most players selling cheap handsets struggle to break even.
Xiaomi, which a few months ago surpassed Samsung.
Chinese Tech Firm’s Earnings Rose 84% Last Year
By PRUDENCE HO, LORRAINE LUK and JURO OSAWAXiaomi Makes a Profit on Its Cheap Smartphones
Wednesday, November 05, 2014
Is Puerto Rico Heading Towards A Federal Bailout?
- Puerto Rico's financial condition continues to deteriorate.
- Puerto Rico faces a narrowing liquidity with its cash dwindling.
- Puerto Rico may be forced to seek a federal bailout.
In the 2008 financial crisis, major banks like Citigroup (NYSE:C) and Merrill Lynch were on the verge of collapse. We all remember that a taxpayer-funded bailout saved those financial institutions.
To avoid a wholesale financial collapse, Puerto Rico, a U.S. territory, may need a similar plan of assistance or some other type of intervention by Congress.
According to a Reuters article, Moody's reports that Puerto Rico faces "narrowing liquidity" as its "cash dwindles."
Government officials in Puerto Rico have attempted to make changes in policy and praise the lending environment, but those words have little to do with reality.
"In the past six weeks, Puerto Rico's junk-rated bonds have slumped while investment-grade municipals have rallied," writes noted economist and academic Arturo Porzecanski in a new essay.
Is Puerto Rico Heading Towards A Federal Bailout?"Investors have become pessimistic even though the Commonwealth has recently managed to borrow $900 million from a group of banks led by J.P. Morgan, Morgan Stanley and Bank of America," Porzecanski writes.
"The island's government was actually hoping to raise $1.2 billion, and it was granted at a punishing interest rate of 7.75 percent. In years past, the Commonwealth had always been able to obtain short-term credit for its seasonal needs at rates below two percent. According to Bloomberg News, the hedge funds which bought Puerto Rico's last bond issue in March - it was priced to yield an eye-popping 8.75 percent - have been losing confidence and have pared back their holdings."
Tuesday, November 04, 2014
SEC Fines 13 Firms Over Sales of Puerto Rico Bonds
Federal regulators have fined 13 brokerage firms, including Charles Schwab, JPMorgan Securities and TD Ameritrade, accusing them of failing to protect retail investors in sales of high-risk bonds issued by Puerto Rico's debt-strapped government.
The Securities and Exchange Commission announced the penalties Monday. The amounts are small, from $54,000 against Hapoalim Securities USA to $130,000 for Riedl First Securities of Kansas.
But they are significant because they represent the SEC's first actions under a rule establishing the smallest amount of municipal bonds that brokerages can sell an investor in a single transaction. Retail investors usually buy securities in smaller amounts, so the rule is designed to ensure that high-risk "junk" bonds are sold only to investors who can purchase bigger quantities and shoulder greater risk.
The SEC said it found 66 cases in which firms sold bonds in amounts below the $100,000 minimum set for a $3.5 billion sale this year of Puerto Rican government bonds.
The 13 firms neither admitted nor denied wrongdoing under the settlement. They were censured by the SEC, bringing the possibility of a stiffer sanction if the alleged violation is repeated. In addition, the firms agreed to review their policies and procedures and make necessary changes to keep them in compliance with the rule on minimum amounts.
Puerto Rico, with a shrinking population and economy, is struggling with $73 billion in public debt accumulated over several decades. The U.S. island territory of 3.67 million people is in its eighth year of recession and bears a 13.5 percent unemployment rate.
In February, credit-rating agency Moody's Investors Service downgraded Puerto Rico's debt to junk status. That came a few days after agency Standard & Poor's downgraded the island's debt by one notch, prompting the local government to file new legislation aimed at shoring up the economy as it prepared to re-enter the bond market.
Puerto Rico's government this year has managed its first balanced budget in more than a decade, sales-tax revenues are up and the publicly-owned power company has won breathing room to pay its debts. The developments have bought some time for Puerto Rico to stave off an economic crisis, but it may only be for a while. As the island has tried to pay off its heavy debt by selling bonds, some investors who are critical to keeping the bonds afloat are wary.
The prolonged recession has sent businesses and people fleeing to the mainland U.S. and spooked the investors holding billions of dollars of Puerto Rico's debt. That has sharply raised the cost of government borrowing and lowered the value of the bonds it has issued.
In addition to Hapoalim Securities and Riedl First Securities, the firms and the amounts they were fined: Charles Schwab & Co., $61,800; Interactive Brokers LLC, $56,000; Investment Professionals Inc., $67,800; JPMorgan Securities, $54,000; Lebenthal & Co., $54,000; National Securities Corp., $60,000; Oppenheimer & Co., $61,200; Stifel Nicolaus & Co., $60,000; TD Ameritrade, $100,800; UBS Financial Services, $56,400; and Wedbush Securities Inc., $67,200.
SEC Fines 13 Firms Over Sales of Puerto Rico Bonds
Monday, November 03, 2014
Returns on Muni Bonds Soar
Investors seeking higher returns are finding them in an unexpected place: the market for debt sold by states, cities and government-related entities.
Municipal bonds have posted their longest string of monthly gains in more than two decades, outpacing gains this year in blue-chip U.S. stocks and corporate debt. The rally is pushing down borrowing costs for scores of municipalities, enabling even cash-strapped ones to tap capital markets.
The gains stand out following the $3.7 trillion sector’s 2.55% decline in returns last year, driven by Detroit’s record bankruptcy and Puerto Rico’s financial woes. That pullback revived calls by market pundits since the financial crisis that municipal debt was vulnerable to an investor exodus.
Municipal bonds have returned 8.32% in 2014 through Friday, including price gains and interest payments, according to BarclaysPLC. That compares with 6.86% for the Dow Jones Industrial Average, 6.68% for highly rated corporate debt and 4.07% for U.S. Treasury debt.
Many municipal bonds are considered nearly as safe as Treasurys because they are backed by tax revenue. Some of the biggest beneficiaries of the rally have been issuers of lower-rated debt, such as a $3.5 billion sale by Puerto Rico, $241 million of bonds backed by hotel and alcoholic-beverage revenue in Atlantic City, N.J., and a $1.4 billion offering from a struggling Southern California toll road.
Amy Potter, chief financial officer for the Transportation Corridor Agencies, which oversee the 15-mile toll road in Orange County, Calif., said investor demand allowed the authority to increase its borrowing, refinancing more of its debt and lowering its interest payments.
“We were able to exceed all of those goals, so we’re extremely pleased,” she said.
At the same time, low overall borrowing by cities and states has reduced the supply of bonds, while higher tax rates have increased the relative attractiveness of tax-exempt municipal debt to investors looking for a haven, said Paul Palmeri, head of the public-finance group at J.P. Morgan Chase & Co.
“You have the perfect mix this year,” he said.
The broad debt-market rally that has upended Wall Street bets on rising interest rates has fueled a surge of investor funds into municipal debt. Yields on debt issued by states, cities and local government-related entities fell to 1.94% in mid-October, their lowest in two years, according to Barclays data. Yields fall when prices rise.
Investors, led by retail investors purchasing the debt through mutual funds, have poured $18.2 billion into municipal-bond funds so far this year, according to Lipper. They withdrew $48.38 billion in the same period last year.
The warming trend is likely to continue, analysts and traders say. The supply of new muni bonds declined 10.5% to $227.8 billion in the first nine months of the year from the same period last year, according to data from the Securities Industry and Financial Markets Association trade group, following a decline in 2013.
That leaves investors lining up for the few new bonds that come to market, said Daniel Solender, director of municipal-bond management at Lord Abbett & Co., which oversees about $16 billion in tax-exempt bonds.
For a New York investor in the highest tax bracket, a top-rated state bond maturing in 10 years and yielding about 2% would be the equivalent of a taxable bond yielding about 3.9%, he said.
“Every deal that’s priced appropriately gets plenty of interest,” said Mr. Solender. “Since it’s been slow so long, there’s pent up demand waiting.”
The gains have helped municipal-bond investors overcome fears about unfunded pensions or other looming fiscal problems in specific cities or states, said Thomas McLoughlin, co-head of fundamental research at UBS Wealth Management Americas.
Rabbi David Teutsch, a professor at the Reconstructionist Rabbinical College near Philadelphia, said he invests in municipal bonds for capital preservation and he doesn’t think too much about the market’s ups and downs. “It’s not like because they’re worth more, I’m going to sell them,” he said. “In the long run, the fluctuations don’t matter that much to me.”
The election calendar doesn’t promise heavy bond issuance. The ballot includes about $44.7 billion in possible bond issues, according to Ipreo. Voters must approve municipal-bond issuance in many U.S. jurisdictions.
Demand also has been robust amid the return of large price swings in stocks and bonds. Purchases of municipal bonds spiked when the Dow and U.S. Treasury yields fell sharply on Oct. 15, according to the Municipal Securities Rulemaking Board.
Even the threat posed by Puerto Rico, which is trying to recover after its debt was downgraded to junk in February, hasn’t scared off many investors. The U.S. commonwealth has about $73 billion in debt, which is widely held by individuals, mutual funds and hedge funds. In June, the island’s public officials passed legislation allowing some public agencies to restructure billions.
Many investors have sold their Puerto Rico holdings to hedge funds or other distressed-debt funds that are savvy about the risk, said James Iselin, head of municipal fixed income at Neuberger Berman, which manages about $10 billion in tax-exempt debt. Puerto Rico bonds have returned 11.96% this year, according to Barclays.
Others are steering clear, saying that investors should focus on higher-quality debt bearing more-modest interest rates.
“We don’t buy yield for yield’s sake,” said Stephen Czepiel, senior portfolio manager at Delaware Investments, which supervises about $132 billion in U.S. fixed-income assets. “Even in a limited-supply atmosphere, don’t deviate from the credit fundamentals.”
By Aaron KuriloffReturns on Muni Bonds Soar
Puerto Rico To Introduce Tax Reform In 2015
Puerto Rico's Department of the Treasury has disclosed the framework of the tax reforms that are proposed to be introduced during the first quarter of next year, together with a proposed increase in the excise tax charged on crude oil that would bolster the Island's Highways and Transportation Authority. As Puerto Rico looks to shore up its weak budgetary position by raising revenues, it intends to reposition its tax code by reducing its dependence on the collection of direct income taxes and reforming the present indirect sales and use tax (SUT).The aim would be to cut the large portion (estimated at 23 percent) of economic activity in Puerto Rico that is unrecorded and not currently subject to either income or sales taxes. For example, the plan would aim to ensure that 80 percent of individual taxpayers will not pay income taxes by establishing an initial tax threshold of USD60,000, while the income tax base would be broadened to make up part of the revenues lost by eliminating or adjusting the current, at least, 85 tax expenditures. To simplify the corporate code, it is also contemplated that the gross profits tax introduced last year will be repealed and that the corporate tax rate will be equalized with the maximum rate paid by individuals. This would eliminate any need for taxpayers to create flow-through tax businesses or conduits for tax planning purposes. In addition, there would be an elimination of inefficient business tax expenditures, while alternatives would be considered for the reform or substitution of the four percent Act 154 excise tax, which is imposed on a proportion of the income derived by large multinationals in Puerto Rico. At the same time, so as to minimize the underground economy, the present seven percent SUT will be transformed into a broader-based goods and services tax (GST), with the intention of introducing a value added tax at a later date. The single-rate GST would include exemptions for small business and relief for those on low income. It was stressed, however, that the revenue from the SUT that is currently transferred to the COFINA fund, which is allocated to repay the Island's public debt, would be protected, and that COFINA will stay as an important source of government revenue. At the same time, the Government Development Bank has proposed to raise the oil excise tax by USD6.25 per barrel to USD15.50 per barrel, from March 2015. Part of the increased funding would be utilized by the Puerto Rico's Infrastructure Financing Authority to assume and refinance the debt of the Highways and Transportation Authority, which is in financial difficulty, and assist it to issue up USD2.9bn in bonds.
Puerto Rico To Introduce Tax Reform In 2015
Puerto Rico To Introduce Tax Reform In 2015
Friday, October 31, 2014
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.”
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
Bloomberg – Puerto Rico May Raise Petroleum Tax to Back $2.9 Billion of Debt
Puerto Rico May Raise Petroleum Tax to Back $2.9 Billion of Debt
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
Bloomberg – Puerto Rico May Raise Petroleum Tax to Back $2.9 Billion of Debt
Puerto Rico May Raise Petroleum Tax to Back $2.9 Billion of Debt
Puerto Rico bill would shore up finances of transportation authority
Puerto Rico's Government Development Bank said on Thursday it had filed a bill to shore up the finances of the territory's highways and transportation authority, which would include boosting the excise tax charged on crude oil to $15.50 per barrel.
The legislation would also pump up funding for the island's infrastructure financing authority so it could assume or refinance certain highway and transportation debts, according to the GDB.
The tax increase is expected to generate an additional $178 million in revenue per year, The GDB said. (Reporting by Lisa Lambert; Editing by James Dalgleish)
Puerto Rico bill would shore up finances of transportation authority
The legislation would also pump up funding for the island's infrastructure financing authority so it could assume or refinance certain highway and transportation debts, according to the GDB.
The tax increase is expected to generate an additional $178 million in revenue per year, The GDB said. (Reporting by Lisa Lambert; Editing by James Dalgleish)
Puerto Rico bill would shore up finances of transportation authority
UPDATE 2-Puerto Rico to reform taxes, shore up highway authority
Puerto Rico will begin overhauling its tax system and financially shoring up its highways and transportation authority in coming months, territory officials said on Thursday, as the commonwealth fights to gain budget stability.
The tax reforms are intended to reduce the marginal income tax rate, repeal the gross profit tax enacted in 2013, and shift toward consumption taxes, representatives of Puerto Rico's Treasury and Government Development Bank said during a webcast.
The officials said the reforms will "materially increase" general fund revenue and would likely pass the commonwealth's legislature during the first quarter of 2015.
Under the reforms, which were designed in consultation with KPMG at a cost of $4.7 million, Puerto Rico would replace its 7 percent sales tax with a broad-based goods and services tax. That will evolve into a value-added tax levied at each level of the distribution chain, said GDB President Melba Acosta-Febo.
Acosta emphasized the reforms will ensure the protection of the Sales Tax Financing Authority (COFINA in Spanish) revenue and pledges that back some $16 billion of outstanding COFINA bonds. She added COFINA would remain an "important source of financing."
The new system would eliminate income taxes on individuals earning less than $60,000.
The overhaul will "reform, cap or substitute" revenue from the Act 154 excise tax levied on multinational manufacturers operating in Puerto Rico, Acosta said. Puerto Rico officials met with U.S. Treasury officials this week about making permanent a provisional ruling that U.S. manufacturers can credit the tax against their federal tax burden, she told Reuters.
At the same time, the GDB filed a bill with the legislature on Thursday to raise the oil tax and move some of the finances of the troubled highways and transportation authority to the Puerto Rico Infrastructure Financing Authority (PRIFA).
The legislation would boost the excise tax charged on crude oil by $6.25 per barrel to $15.50 per barrel, starting in March, which would generate an additional $178 million in revenue per year, the GDB said.
Meanwhile, it would give increased funding to PRIFA so it can assume or refinance certain highway and transportation debts and include an optional authorization of up to $2.9 billion in PRIFA bonds, according to the GDB.
More than a fifth of the loans made by the GDB have gone to the transportation authority, and the bill would allow PRIFA to refinance $2.2 billion of those loans as well as the transportation authority's 2013 bond anticipation notes.
The GDB expects to complete the inaugural transaction for the new infrastructure financing this quarter, depending on market conditions and the legislative process, Acosta said.
Still, the island's next bond deal will come from the Puerto Rico Aqueduct and Sewer Authority in early 2015, with the aim of raising enough money to fund several years of its $400-million capital works program, said GDB Chairman David Chafey.
The officials also said the island's electric power authority can make a January debt payment. (Reporting by Reuters in San Juan and Lisa Lambert in Washington; Editing by Chris Reese and Ken Wills)
UPDATE 2-Puerto Rico to reform taxes, shore up highway authority
The tax reforms are intended to reduce the marginal income tax rate, repeal the gross profit tax enacted in 2013, and shift toward consumption taxes, representatives of Puerto Rico's Treasury and Government Development Bank said during a webcast.
The officials said the reforms will "materially increase" general fund revenue and would likely pass the commonwealth's legislature during the first quarter of 2015.
Under the reforms, which were designed in consultation with KPMG at a cost of $4.7 million, Puerto Rico would replace its 7 percent sales tax with a broad-based goods and services tax. That will evolve into a value-added tax levied at each level of the distribution chain, said GDB President Melba Acosta-Febo.
Acosta emphasized the reforms will ensure the protection of the Sales Tax Financing Authority (COFINA in Spanish) revenue and pledges that back some $16 billion of outstanding COFINA bonds. She added COFINA would remain an "important source of financing."
The new system would eliminate income taxes on individuals earning less than $60,000.
The overhaul will "reform, cap or substitute" revenue from the Act 154 excise tax levied on multinational manufacturers operating in Puerto Rico, Acosta said. Puerto Rico officials met with U.S. Treasury officials this week about making permanent a provisional ruling that U.S. manufacturers can credit the tax against their federal tax burden, she told Reuters.
At the same time, the GDB filed a bill with the legislature on Thursday to raise the oil tax and move some of the finances of the troubled highways and transportation authority to the Puerto Rico Infrastructure Financing Authority (PRIFA).
The legislation would boost the excise tax charged on crude oil by $6.25 per barrel to $15.50 per barrel, starting in March, which would generate an additional $178 million in revenue per year, the GDB said.
Meanwhile, it would give increased funding to PRIFA so it can assume or refinance certain highway and transportation debts and include an optional authorization of up to $2.9 billion in PRIFA bonds, according to the GDB.
More than a fifth of the loans made by the GDB have gone to the transportation authority, and the bill would allow PRIFA to refinance $2.2 billion of those loans as well as the transportation authority's 2013 bond anticipation notes.
The GDB expects to complete the inaugural transaction for the new infrastructure financing this quarter, depending on market conditions and the legislative process, Acosta said.
Still, the island's next bond deal will come from the Puerto Rico Aqueduct and Sewer Authority in early 2015, with the aim of raising enough money to fund several years of its $400-million capital works program, said GDB Chairman David Chafey.
The officials also said the island's electric power authority can make a January debt payment. (Reporting by Reuters in San Juan and Lisa Lambert in Washington; Editing by Chris Reese and Ken Wills)
UPDATE 2-Puerto Rico to reform taxes, shore up highway authority
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