Guam Bonds Attain Year’s Best Muni Return as Puerto Rico Falters

Bonds from Guam are delivering the best returns in the U.S. municipal market, and may gain again in 2015 as investors seek tax-exempt debt while steering clear of flailing Puerto Rico.

Obligations of the Pacific territory have earned 17.2 percent this year, compared with 9.1 percent for all munis, Barclays Plc data show. At this pace, it would be the largest outperformance in at least 13 years. The securities are also set to beat Puerto Rico’s for an unprecedented third straight year. Debt of the Caribbean getaway has gained 13.8 percent in 2014.

With municipal interest rates close to generational lows, Guam offers extra yield while boasting fiscal gains that separate it from Puerto Rico and the U.S. Virgin Islands. The three territories’ debt is tax-free nationwide. The Pacific island saw its second straight year of economic growth in 2013 and won its highest rating in a decade from Standard & Poor’s, though the rank remains below investment grade.

“Guam’s credit fundamentals look like they’re still trending positive,” said John Miller, co-head of fixed income in Chicago at Nuveen Asset Management, which oversees about $100 billion of munis. “Since it’s a good story and it’s tax-exempt across the United States, spreads could continue to narrow.”

Borrowing Contrast

Investors’ enthusiasm about Guam contrasts with their take on Puerto Rico. The Caribbean commonwealth and its agencies are grappling with $73 billion of debt and soaring borrowing costs. The island had its bond ratings cut this year to speculative grade, and its main indicator of economic health is close to the lowest level in two decades.

By comparison, Guam’s issuers have about $2.6 billion of debt, and its ratings are increasing, data compiled by Bloomberg show. S&P, while calling the debt burden “extremely high,” raised Guam in October 2013 to BB-, three steps below investment grade. The company upgraded bonds backed by hotel taxes last month to A-, four steps above junk.

Guam, with about 160,000 residents, attracted a record 1.3 million tourists in fiscal 2013 and expects the number to keep climbing, budget documents show.

The territory may log its third consecutive fiscal year with a fund surplus, S&P said.

‘Exercise Restraint’

“The fact that government finances are better than they’ve been in two decades is cause for celebration,” Governor Eddie Calvo, who won re-election in November, wrote in a forward to the 2015 budget, which took effect Oct. 1. “But, we must exercise restraint through our excitement.”

Challenges include reliance on one-time revenue to bolster its finances and dependence on travelers from Japan, according to S&P.

Guam’s real gross domestic product grew 0.6 percent in 2013, slowing from 1.7 percent in 2012, U.S. Bureau of Economic Analysis data show.

Business spending on construction and equipment boosted growth, surging 34.3 percent on building of the island’s first private hospital, the Guam Regional Medical City, and a luxury hotel, the 419-room Dusit Thani Guam Resort, BEA data show.

Dollar Drag

The strengthening dollar is a drag on tourism, which along with federal outlays account for the biggest contributions to the economy. The island hosts military outposts, including Andersen Air Force Base and Naval Base Guam.

Japanese are the most plentiful tourists, according to budget documents. At about 119 yen, the U.S. currency has gained 13 percent this year, making the island costlier for voyagers from Japan. The number of Japanese visitors sank 9.5 percent in fiscal 2014, according to S&P.

Decreased borrowing is another way Guam is diverging from Puerto Rico. The island and its agencies have sold $162 million of bonds this year, the least since 2008, Bloomberg data show.

Puerto Rico’s legislature passed a $2.9 billion borrowing measure last week that would repay money owed to the Government Development Bank and fund public transportation.

“Guam hasn’t had to clear the market with any large issues,” said Dan Solender, who helps manage $16 billion as director of munis at Lord Abbett & Co. in Jersey City, New Jersey. “Given that Puerto Rico is struggling, this is another example of a triple tax-exemption that can work in a variety of funds.”

Record Price

Some Guam bonds with higher interest rates may outperform next year if interest rates climb, Solender said.

Ten-year Treasury yields will reach 3.01 percent at this time in 2015, about 0.8 percentage point above current levels, according to the median forecast of 72 analysts in a Bloomberg survey.

Guam general obligations maturing in November 2039 traded Dec. 4 at 117.6 cents on the dollar, for a 3.12 percent yield. That’s the highest price on record, and the yield spread of 1.93 percentage points above benchmark munis is the narrowest yet, Bloomberg data show.

The elevated price cushions holders if interest rates rise, said Solender, who owns some of the securities.

Nuveen is the largest holder of the biggest portions of debt issued by Guam, its waterworks authority and its power agency, Bloomberg data show. The company has some in its Kansas (FKSTX),Louisiana (FTLAX), Nebraska (FNTYX) and Wisconsin (FWIAX) funds, all of which have beaten at least 80 percent of peers this year.

“We’ve been cautious about putting too much territorial debt in a state fund, and we’ve been negative on Puerto Rico’s credit trajectory,” Miller said. “We’re trying to add things where we’re positive, and Guam is one that fits.”

To contact the reporter on this story: Brian Chappatta in New York atbchappatta1@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.netMark Tannenbaum, Jeffrey Taylor

By Brian Chappatta

Guam Bonds Attain Year’s Best Muni Return as Puerto Rico Falters

University of Puerto Rico on Negative CreditWatch: S&P

Standard & Poor's Ratings Services placed its BB long-term rating on the University of Puerto Rico's (UPR) existing university system revenue bonds on CreditWatch with negative implications.

University of Puerto Rico on Negative CreditWatch: S&P

Nautical Stripes Help Puerto Rican Culture Sail Off the Island

While viewing the fantastic and seemingly-endless Jean Paul Gaultier special exhibition at the National Gallery of Victoria in Melbourne, Australia in October; my mind traveled back to Puerto Rico.

My father's side of the family is from Borinquin and over the years, I have visited there many times. Whether the French-born fashion maven and professional pot-stirrer has ever traveled to Puerto Rico, I can't say. But as I viewed the products of his inventive mind, I was also thinking of the runway show of Puerto Rican fashion designer Luis Antonio which I'd see the month previous during New York's Mercedes Benz Fashion Week. Both shows made me appreciate how geography and culture influence what we wear.

Let's start with nautical stripes. I couldn't help but notice after leaving Melbourne for Tokyo that every Japanese traveler was wearing them. In Japan, getting dressed in the morning appears to be one extreme or another. A good number of people seem to approach it with the same creativity as putting on a uniform, while others assemble the most disparate articles of clothing they can find and call it an ensemble. At the airport I saw men, women and children, with striped sweaters, skirts, backpacks even tights.

What I learned at the Melbourne Gaultier retrospective is that the Breton French sailor stripe is a touchstone for Gaultier who incorporated it in many things from sweaters to feathered gowns and man dresses.

Luis Antonio, of suburban San Juan, is also inspired by the mariner. In the 2015 Spring Collection show in New York, his models sprinted down the runway in conventional sailor stripes as well as mixed-up chaotic lines on super-feminine gowns, dresses and jumpsuits.

This was Antonio's first appearance at Fashion Week, which I am told is a hugely expensive undertaking. So it is a big gamble for this still relatively unknown designer who has clothed island superstars, Marc Antony and Jennifer Lopez as well as the Argentinian actress and singer Mia Maestro. After viewing the collection, I concluded that Antonio's clothes should resonate with women far beyond the tropics. But take a look at these scenes from Puerto Rico and you'll see how island life surely colors his work.

 

Puerto Rico is as loved by its residents as by visitors. This is not the same as say, Paris or New York, where tourists and locals mingle on the streets but otherwise separate in their activities because Parisians eschew the Eiffel Tower and New Yorkers avoid the Empire State Building. In Puerto Rico you don't need to find some out-of-the-way place that only natives know about, there's no separate "tourist" scene when it comes to food, nightlife, recreation or shopping. Puerto Ricans never tire of exploring the paradise they call home.

Still, PR's island culture appears on the US mainland in limited doses. We dance to salsa music but are ignorant about Afro-inspired bomba y plena. The fabulous coffee, grown by my brother Rafe and many others in the Cordillera mountain range is sensational but is only now becoming available in stores on the mainland. Pan de Agua, a doughy bread consumable by the full loaf if you are not careful, remains an island secret.

This is why I am heartened to see the clothes in Antonio's Maritime collection sailing down the runway in New York. A stripe may seem like a simple thing until you see how endlessly and creatively it can be re-envisioned to underline the world's fabulous distinctions.

Christine Negroni                                        

Nautical Stripes Help Puerto Rican Culture Sail Off the Island

Puerto Rico Debt Sets Record Low After Utility Meets Investors

Prices on Puerto Rico bonds fell to a record low after a meeting between investors and officials of the commonwealth’s power utility, which may restructure $8.6 billion of debt in coming months.

Commonwealth general obligations maturing in July 2035 traded today at an average of 84.17 cents on the dollar, the lowest since the securities were first sold March 11 at 93 cents, data compiled by Bloomberg show. Debt of the junk-rated U.S. territory is tax-free nationwide.

Puerto Rico Electric Power Authority officials told investors yesterday that they would seek more time to work on restructuring the agency, according to a person with knowledge of the meeting inManhattan, who requested anonymity because the talks were private. Reuters reported on the gathering earlier.

Utility representatives also submitted an incomplete business plan, according to the person. The agency was required to file a five-year strategy by Dec. 15, according to an August agreement with creditors that put off payment of bank loans. Prepa plans to request an extension of that agreement, which expires March 31, and will discuss a timeframe in January, the person said.

Abimael Lisboa Felix, a spokesman for Prepa in San Juan, didn’t respond to an e-mail and phone message requesting comment on the plans.

Stakeholders’ Benefit

Only investors and creditors who signed the August accord received yesterday’s report, as it’s a work in progress, Lisa Donahue, Prepa’s chief restructuring officer, said in a statement.

“These initiatives will be important as we continue to develop our turnaround and restructuring plan to ensure Prepa’s future, for the benefit of all stakeholders, including our employees, customers, creditors, and stakeholders,” Donahue said.

The limited distribution of the business plan hurt bond prices today, said Dan Toboja, senior vice president of municipal-bond trading at Ziegler, a broker-dealer in Chicago.

“The market prefers information,” Toboja said. “Any lack of disclosure or appearance of a lack of disclosure is going to spook investors a little bit.”

Prepa signed the August agreement after it tapped reserves and capital-fund cash to pay bondholders this year.

For Related News and Information: Puerto Rico Utility Needs to Move to Natural Gas, Official Says Puerto Rico Electric Utility’s Late Accounts Surge 219% From ’12 Puerto Rico Rally at Risk With Rising Debt Expenses: Muni Credit

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.netMark Tannenbaum, Alan Goldstein

By Michelle Kaske

Puerto Rico Debt Sets Record Low After Utility Meets Investors

Prepa filing 5-year business plan that includes wide-ranging spending cuts

The Puerto Rico Electric Power Authority is submitting a five-year business plan to investors on Monday as another key deadline in the debt-ridden government utility’s restructuring arrives.

The wide-ranging plan drafted by a team headed Prepa’s chief restructuring officer, Lisa Donahue, calls for payroll reductions, pared pension benefits, higher electricity rates, closures of outdated generating plants and the elimination of subsidies.

The business plan is the second of three key documents on the path to restructuring that were required under forbearance agreements between Prepa and its creditors and bondholders in August.

The first report, issued by FTI Consulting in mid-October, pointed to more than $1.7 billion in unpaid electric bills owed to the public utility. It said the cash-strapped utility should cut service to public corporations that aren’t paying their power bills. It also said Prepa could outsource collections on some $400 million in inactive accounts and revamp its general collections methods.

The reports are being overseen by Donahue, who was brought on as chief restructuring officer as required by the forbearance agreements. She is heading 10-person team from her firm, AlixPartners, with FTI Consulting working alongside.

As part of its agreements with the creditors group, Prepa committed to complete a five-year business plan (as required in the new energy reform law) by December 15 and complete a full debt restructuring plan by March 2, 2015 that could impact holders of its roughly $9 billion in debt.

Junk-rated Prepa may still undertake the largest debt-restructuring ever in the U.S. municipal-bond market. The Recovery Act, a Puerto Rico law enacted hastily last summer with Prepa in mind, allows ailing public corporations to restructure their debts through a bankruptcy like process in local courts. The law provides two avenues for the public corporations to restructure their debt. A Chapter 2 filing would allow public corporations to create plans that postpones or reduces debt service payments with the consent of a majority of creditors. A Chapter 3 filing would allow public corporations go through the local courts if voluntary repayment plans cannot be reached with a majority of creditors.

Fitch Ratings said last week it is maintaining its low-mid junk grade and negative watch on Prepa bonds pending a review of a restructuring plan due in early March, saying that some sort of debt restructuring remains “probable.”

Fitch said the utility’s financial performance remains weak, noting that for the three months ended Sept. 30, 2014 Prepa reported unaudited earnings before interest and depreciation of $233 million and a net loss of $44 million. Poor performance for the period was characterized by declining energy sales (1.5%), declining customers (0.7%), high concentrations of accounts receivable (26% of revenue), high fuel costs (15 cents/kWh) and an unwillingness to increase base electric rates.

Legal wrangling continues in the lawsuit filed by investment firms challenging the constitutionality of the Recovery Act. Franklin Funds and Oppenheimer Rochester Funds filed the lawsuit in the U.S. District Court in San Juan shortly after the law’s passage, naming the Puerto Rico government and Prepa. BlueMountain Capital Management followed with its own suit.

The plaintiffs claim the law violates multiple provisions of the federal Constitution, arguing that only Congress can approve bankruptcy laws.

Puerto Rico’s public corporations are not eligible to restructure their debts under Chapter 9 of the federal bankruptcy code. And because they are governmental entities, those public corporations are unable to seek relief under Chapter 11. The island and other territories are the only jurisdictions in the U.S. where this is the case.

Prepa and the government counter that the Recovery Act assures restructuring of debt by public corporations where no federal law applies and ensures these public corporations have the ability to continue to provide vital public services like delivering dependable electricity and clean water.

In defending the constitutionality of the Recovery Act, government lawyers have highlighted the fiscal crisis affecting Puerto Rico and the right of the commonwealth government to use its “police powers” during what they describe as an “emergency situation.”

They have also emphasized that the Recovery Act provides similar treatment to creditors and establishes similar procedures to federal bankruptcy law in arguing that this is a legitimate move by Puerto Rico to resolve its fiscal situation, just as other jurisdictions stateside like Detroit have undertaken.

The government has moved to have the lawsuits dismissed, arguing that they are “unripe” because, to date, no public corporation has tapped the Recovery Act.

Prepa filing 5-year business plan that includes wide-ranging spending cuts

Puerto Rico Finally Approves Oil Tax Hike

After prolonged discussions, and a threat from Governor Alejandro Garcia Padilla to shut down public transport services, both Puerto Rico's House of Representatives and Senate have now approved a controversial 68 percent hike in oil tax to stop a possible worsening of the territory's debt problems. The increased revenues, worth some USD178m per year, will be used by Puerto Rico's Infrastructure Financing Authority to assume and refinance the debt of the Highways and Transportation Authority, which is in financial difficulty, and support the issue up to USD2.9bn in bonds. The territory's oil excise tax will rise by USD6.25 per barrel, to USD15.50 per barrel, from March 2015. The delay to the increase has been agreed to give time for the Government and lawmakers to look for other replacement revenue sources that could be less of a burden on families and small businesses. In addition, Puerto Rico's Senate has imposed other conditions on its approval. In particular, an 8.5 percent interest rate cap has been placed on the proposed bond sale, an inflation link to the oil tax rate has been eliminated, and the rate increase has been linked to progress on tax reform in the territory. The Treasury Department is now intended to complete a study on a tax reform framework before January 31, 2015. Those reforms could reduce Puerto Rico's dependence on the collection of direct taxes by, for example, raising individual income tax thresholds and transforming the present sales and use tax into a broad-based value added tax.

by Mike Godfrey

Puerto Rico Finally Approves Oil Tax Hike

U.S. Economy Added 321,000 Jobs in November; Unemployment Rate Is 5.8% - NYTimes.com

A sign at a restaurant in San Rafael, Calif. Since February, monthly hiring nationwide has consistently stayed above 200,000. Credit Justin Sullivan/Getty Images

Employers added 321,000 jobs in November, a very healthy showing that echoes other positive economic data recently and bodes well for the crucial holiday retail season underway.The unemployment rate remained unchanged from last month at 5.8 percent, the Labor Department said Friday.

Government statisticians also revised upward the number of jobs added in September and October by 44,000, another good sign. Significantly, average hourly earnings surged 0.4 percent in November, twice what economists had been expecting and a sign the healthier economy is finally translating into wage gains for ordinary workers. Over the last 12 months, however, earnings are up only 2.1 percent.

Wall Street had been expecting payrolls to grow by 230,000 in November, with the unemployment rate remaining unchanged. November’s gain was the largest monthly jump in payrolls in nearly three years.

Despite the deep economic frustration many Americans feel, evident in everything from public opinion surveys to water cooler chats to last month’s Congressional elections, the American economy has made significant progress this year. In November 2013, for instance, the unemployment rate was 7 percent, and the jobless rate five years ago this month was 9.9 percent.

A Federal Reserve survey of economic conditions across the country released Wednesday reported healthier consumer spending in many regions, likely as a result of lower gas prices, as well as gains in hiring.

Last month, average gasoline prices in the United States fell below $3 a gallon for the first time since 2010, amid a global plunge in crude prices. Crude oil has kept dropping since then, to about $66 a barrel, which suggests prices at the pump have further to drop.

As of Monday, gas prices in the United States averaged $2.77 a gallon, according to the Energy Information Administration, compared with $3.26 in December 2013. If gas prices stay where they are, the typical household will save roughly $600 over the next 12 months.

The overall expansion of the economy, as measured by the annual rate of growth in gross domestic product per quarter, has also been picking up steam.

In late November, the Commerce Department revised upward its estimate of the growth rate in the third quarter to 3.9 percent from an initial figure of 3.5 percent. Output rose at annual rate of 4.6 percent in the second quarter, a snapback from the contraction in the first few months of the year.

Wall Street, too, has been surging, with stocks hitting highs repeatedly in recent weeks.

Finally, the section of the economy that helped lead the way down — housing — has made an impressive recovery, at least in terms of home values, if not new construction.

The real estate sector could be dealt a setback if the Federal Reserve raises interest rates next year, as is widely expected, but in more affluent areas in particular, surging home prices have already helped restore much of the confidence that was shattered in the financial crisis of 2008 and the deep recession that followed.

So why the persistent gloom, not to mention anger?

Part of the problem is that even though employment is back above pre-recession levels — the eight million jobs lost between 2008 and 2010 have been more than made up since then — millions of new workers have joined the work force over that period.

What’s more, wage gains for the vast majority of Americans who kept their jobs throughout the downturn and then the recovery been very modest. The 2 percent wage increase over the last year is barely enough to keep up with inflation or rising costs for many services, like education, insurance and health care.

For wages to show meaningful gains over a sustained period of time, as was the case in the 1990s, the unemployment rate would likely have to drop below 5 percent, said Diane Swonk, chief economist at Mesirow Financial in Chicago.

For some highly skilled workers in sectors like technology and finance, wages have been rising sharply, as have stock holdings and 401(k) portfolios.

But unlike in the 1990s, the gains for the broad mass of middle-skilled and low-skilled workers have been scant, Ms. Swonk said.

“Some boats were lifted up more than others in the 1990s, but all boats did go up some back then,” she said. “That hasn’t been the case lately.”



By NELSON D. SCHWARTZ

U.S. Economy Added 321,000 Jobs in November; Unemployment Rate Is 5.8%

Royal Caribbean's new mega ship to visit Puerto Rico

Royal Caribbean International's newest mega cruise ship, Quantum of the Seas, will visit Puerto Rico for the first time this week with some 5,000 people aboard.

Quantum of the Seas sailed from Cape Liberty, New Jersey, earlier this week and will stop at the port of San Juan for six hours late afternoon Thursday, Royal Caribbean representative Chase Arlen told Efe.

The vessel, launched last month, has 4,160 double-staterooms and an additional 794 rooms.

Though it is Royal Caribbean's latest addition, Quantum of the Seas is not the company's largest cruise ship, as Oasis of the Seas and Allure of the Seas each have around 6,000 staterooms.

After docking in Puerto Rico, the ship will sail on to St. Martin, Martinique, Barbados and St. Kitts and Nevis, before returning to New Jersey on Dec. 12.

The arrival of Quantum of the Seas coincides with the opening of dock number 3 in Old San Juan, designed to receive mega ships.

In November 2013, Gov. Alejandro Garcia Padilla announced that Royal Caribbean had scheduled nine visits to Puerto Rico for the 2014-2015 season, bringing more than 33,000 people to the Caribbean island. EFE

Royal Caribbean's new mega ship to visit Puerto Rico

Banco Popular De Puerto Rico Recognized as “Bank of the Year” by Leading Magazine “The Banker”

SAN JUAN, Puerto Rico--(BUSINESS WIRE)--Popular, Inc. (NASDAQ: BPOP) today announced its banking subsidiary, Banco Popular de Puerto Rico, received the prestigious “Bank of the Year Puerto Rico for 2014” award from The Banker, an international banking magazine published by The Financial Times. The Banker is read in 180 countries and was founded in 1926.

“Bank of the Year Puerto Rico for 2014”

The Bank of the Year Awards, now in its 15^th year, recognizes the top financial institutions in the world. Winners were announced at an exclusive event at The Intercontinental Hotel, Park Lane, London on November 27.

The awards are the industry’s most widely used index of global banking, and are internationally recognized as the definitive guide to the soundness, strength and profitability of banks, according to The Banker. Banks are assessed by Tier 1 capital, with secondary rankings by assets, capital/asset ratio, real profit growth, profit on average capital, and return on assets.

Richard L. Carrión, Chairman and CEO of Popular, Inc. said, “We are honored to be recognized by The Banker for the significant strides Banco Popular has made in generating strong revenue growth and securing operational efficiencies in challenging economic times. The core values that have guided the bank for over 120 years helped us chart a course on which we aspire to continue. We are proud to share this award with our employees, customers, shareholders and the communities we are privileged to serve.”

The award from The Banker is based on several key accomplishments. In 2013, the price of the stock of Popular, Inc. rose 38%, the commercial loan portfolio increased by 3%, the bank repaid $935 million in outstanding TARP funds, and U.S. operations consolidated into two key regions, New York/New Jersey and South Florida. Also considered in the award, were the thousands of hours that Popular employees devoted to community service in 2013, and the nearly $2 million donated to non-profit organizations, 80% of which were in education, and 20% focused on economic development.

Banco Popular de Puerto Rico is the leading financial institutions in the following categories: credit cards with 52% of the market, 40% in lending, 32% in mortgage, 38% in commercial and construction lending, 31% in personal loans, and 37% in overall lending. The company is also recognized for its online banking platform, “Mi Banco Online” and mobile app, “Mi Banco Mobile”, leading digital platforms in Puerto Rico.

About Popular, Inc.

Founded in 1893, Popular, Inc. (NASDAQ: BPOP) is the leading banking institution by both assets and deposits in Puerto Rico and ranks among the top 50 U.S. banks by assets. In the United States, Popular has established a community-banking franchise that does business as Popular Community Bank, providing a broad range of financial services and products, with branches in Florida, New York and New Jersey.

For more information, visit http://www.popular.com.

Contacts

Popular, Inc.
Teruca Rullán, 787-281-5170 or 917-679-3596 (mobile)
Senior Vice President, Corporate Communications

Award Is Internationally Recognized as the Definitive Guide to the Soundness, Strength and Profitability of Banks; BPPR Named 2014 Puerto Rico Bank of the Year

Banco Popular De Puerto Rico Recognized as “Bank of the Year” by Leading Magazine “The Banker”

Puerto Rico's House passes bill to increase crude oil tax

Puerto Rico's House of Representatives passed a bill to increase a tax on crude oil by around 68 percent on Tuesday, in a move that helps facilitate a crucial bond sale of up to $2.9 billion.

After more than a week of political wrangling, the House passed the bill with 26 votes in favor, 18 against, and one abstention, according to the House of Representatives official report. Six representatives did not vote.

Puerto Rico's House passes bill to increase crude oil tax

Puerto Rico House Plans Vote on $2.9 Billion Borrowing Plan

Puerto Rico’s House of Representatives is set to vote as soon as tomorrow on a $2.9 billion borrowing plan that would bolster the Government Development Bank and fund public transportation.

House members recessed until tomorrow after discussing amendments to a bill that would raise the junk-rated commonwealth’s petroleum tax to $15.50 per barrel, from $9.25, with some of the additional revenue going to back bonds.

Lawmakers are debating whether the increase would take effect at the same time as an anticipated tax overhaul in 2015 and how the steeper levy would be enforced, said Danny Hernandez, a spokesman for Jaime Perello Borras, the chamber’s president. Approval in the House would send the measure to the Senate, Hernandez said.

“Some of them are asking about when the tax reform is going to be implemented,” Hernandez said in a telephone interview from San Juan.

The bill would allow the Infrastructure Financing Authority to sell as much as $2.9 billion of debt backed by oil-tax revenue. Proceeds would repay $2.3 billion of Highways & Transportation Authority obligations, most of which is owed to the Government Development Bank, which handles debt sales for the U.S. territory.

The proposed tax increase would also support public buses and trains. Governor Alejandro Garcia Padilla had threatened to stop bus and rail service after lawmakers last month failed to pass the bill at the end of the regular legislative session. Last night, the governor called off the planned transit shutdown.

For Related News and Information: Puerto Rico Said to Pick Barclays to Lead $2.9 Billion Offer Puerto Rico Governor to Call Special Session on Bond Bill Puerto Rico Plans Infrastructure Agency Bonds by March 31

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

By Michelle Kaske

Puerto Rico House Plans Vote on $2.9 Billion Borrowing Plan

Bond for Pilot Detained With Cash in Puerto Rico

A judge ordered the release on bond of a pilot and CEO who was arrested in Puerto Rico after authorities found more than $600,000 in undeclared cash inside his plane, his lawyer said Monday.

The federal court judge approved bond of $100,000 for Khamraj Lall while a grand jury decides whether to indict him, defense attorney Rafael Castro Lang said.

Lall, 47, is the CEO Exec Jet Club LLC, a company based in Gainesville, Florida, that has flown the president of his native Guyana on official trips. The businessman will be allowed to leave Puerto Rico and return home to Ringwood, New Jersey under the terms of the bond.

Lall was the co-pilot on a flight to Guyana when U.S. federal agents searched the aircraft during a refueling stop in Puerto Rico. He and the two others on board reported carrying about $12,000, but agents found $620,588 in plastic bags inside the plane, according to court documents.

U.S. law requires amounts over $10,000 to be declared. Lall was jailed on suspicion of intent to evade currency reporting.

Following his arrest in the U.S. island territory, the government of Guyana said in a statement that Lall's company has transported delegations led by President Donald Ramotar on three official trips overseas.

Bond for Pilot Detained With Cash in Puerto Rico

Puerto Rico gov: buses, trains won't be paralyzed

Puerto Rico's governor said late Sunday that lawmakers have reached a last-minute agreement on a proposed oil tax increase and that public transportation will not be paralyzed as previously planned.

The announcement, made in a televised address, followed a flurry of meetings with legislators this weekend regarding a bill that would increase the excise tax on a barrel of crude oil from $9.25 to $15.50 and help generate $178 million a year.

Garcia has said the increase is needed to boost a debt-ridden transportation agency amid bankruptcy concerns.

"It's the least burdensome solution of all," he said.

The measure also aims to help the government sell up to $2.9 billion in bonds and refinance at least $1 billion in loans made to the Highway and Transportation Authority, which owes $2.2 billion to the island's Government Development Bank, about 21 percent of the bank's loan portfolio.

Prior to Garcia's announcement, Puerto Ricans had been bracing for what officials warned would be an indefinite suspension of buses and trains that serve an estimated 75,000 people. Officials had said that public work projects would be suspended and that the Department of Transportation did not have enough money to pay salaries with the tax boost.

Some agencies within that department operate on quarterly spending plans instead of a yearly budget because of their precarious fiscal situation.

"It's time to face our problems," Garcia said. "We have to tighten the belt on all public corporations without layoffs."

The tax boost is not expected to affect power bills in Puerto Rico, which on average are more than twice those on the U.S. mainland. However, consumers will see an increase in other areas because the private sector will pass along that cost, said economist Gustavo Velez.

The tax increase comes as the island of 3.67 million people struggles through a nearly decade-long economic slump.

Velez said his biggest concern is that the government plans to issue more bonds soon with help from the new tax.

"We cannot keep going further into debt, and we cannot keep approving taxes to artificially maintain corporations alive," he said.

By DANICA COTO

Puerto Rico gov: buses, trains won't be paralyzed

Puerto Rico braces for public transport shutdown

Puerto Rico's capital braced for a public transportation shutdown Monday, as lawmakers and administration officials held last-ditch talks to approve a crude oil tax hike that could keep San Juan's metropolitan area buses and commuter train running.

In what would be a major escalation of Puerto Rico's debt crisis, the local government is planning to shut down its bus and city train service after lawmakers were unable to agree to raise its oil tax by 68 percent to back a $2.9 billion bond sale.

"I depend on the bus for everything," said Mercedes Ortiz, 84, waiting at a bus stop in downtown San Juan to travel to a pharmacy to buy prescription medicine. "I'm against raising the oil tax because it will be a big blow to a lot of people, but I hope the governor does not stop the buses. I don't think its necessary."

The shutdown would impact an estimated 75,000 people who use the government's Metropolitan Bus Authority, the privately run MetroBus, the Tren Urbano commuter train service as well as a bus rapid transport (BRT) that brings commuters from west of San Juan, Transportation Secretary Miguel Torres Diaz said in written comments provided to Reuters Sunday.

It would impact 2,800 workers who work for the Highway & Transportation Authority as well as private companies contracted to service the private bus line, commuter train and BRT system. It would impact road repairs across the island and halt improvement work about to begin on major highways in San Juan and on the islands west and east coast, he added.

Senate Finance Committee Chairman Jose Nadal Power told Reuters that negotiations between the House leadership and Governor Alejandro Garcia Padilla's office were continuing Sunday.

"The governor's office is working with leaders to come up with a solution tomorrow. Aside from the main topic, the oil tax, we must come up with a solution even it if is temporary,” Nadal Power said. "We are facing an emergency situation in terms of public transportation and a solution must be found."

Mayors of San Juan, Bayamon, Carolina and Catano were establishing contingency plans for municipal buses and trolleys to provide service for some major routes. Private public cars will also be allowed to pick up passengers on established bus routes. Union and management employees planned a protest outside the capital on Monday morning.

(Reporting by Reuters in Puerto Rico; Editing by Megan Davies, Bernard Orr)

Puerto Rico braces for public transport shutdown

U.S. government warns Puerto Rico of funding loss if transit shuts

The U.S. Department of Transport warned Puerto Rico that it could jeopardize future funding if it goes ahead with a planned shutdown of its public transit network on Monday, as a local union leader urged bus drivers to show up for work as normal.

In what would be a major escalation of Puerto Rico's debt crisis, the local government is planning to shut down its bus and suburban train service after lawmakers were unable to agree to hike its oil tax by 68 percent, to back a vital bond sale of up to $2.9 billion. Buses and the suburban Tren Urbano serve 75,000 people daily.

The U.S. government pays billions of dollars annually to Puerto Rico for items such as grants for transport projects, healthcare and social security. The warnings apply to transport-related financing.

Two letters from the Federal Highway Administration (FHWA) and the Federal Transit Administration (FTA) warned Miguel Torres, Puerto Rico's transport secretary, that the shutdown could breach commitments to maintain a basic level of operations needed to carry out safety and security duties.

"Failure to fulfill these capacity obligations or your responsibility to properly protect federal assets could jeopardize future federal funding or potentially result in a debt to the federal government," the FTA said in a letter dated Wednesday, Nov. 26.

The letters were posted on local news website Noticel. The FHWA and the FTA could not immediately be reached for comment.

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For links to the letters:

here documents/1d9283058ff742eebc4abb7196595555.pdf

here

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Adding to potential confusion on the scheduled day of shutdown, the president of the United Workers Metropolitan Bus (TUAMA) Authority, Antonio Diaz Lopez, urged employees to report to work on Monday, according to local press reports. He said workers could be paid retroactively if authorities did not have funds to pay salaries in mid-December.

Governor Garcia Padilla has said that the Metropolitan Bus Authority and the Tren Urbano will stop Dec. 1 because there is no money to pay salaries on Dec. 15. The Highway and Transportation Authority is also planning to cease operations on Monday, according to the FHWA letter.

The FHWA warned that the federal government would not meet any claims resulting from contracts canceled due to the shutdown and said it was "deeply concerned that if PRHTA (Puerto Rico Highways and Transportation Authority) ceases operations, it may be unable to meet these federal requirements."

Puerto Rico is struggling with over $70 billion in debt and its economy has been in or near recession for the last eight years. It is in the process of restructuring its electric power authority PREPA, which could lead to a writedown to over $9 billion in debt.

(Reporting by Reuters; Writing by Edward Krudy; editing by Megan Davies and Bernard Orr)

U.S. government warns Puerto Rico of funding loss if transit shuts

Cruise ships to make rare stop in Puerto Rico city

SAN JUAN, Puerto Rico (AP) — Cruise ships are returning to Puerto Rico's second-largest city for the first time in three years.

The mayor of the southern coastal city of Ponce says seven luxury ships operated by Monaco-based Silversea Cruises are expected through 2016.

Maria Melendez said Wednesday that each arrival is expected to generate some $70,000 in revenue. The first ship carrying 540 tourists is scheduled to arrive on Friday.

Puerto Rico overall has seen a 10 percent increase in cruise ship passenger arrivals this year with nearly 860,000 people visiting the U.S. territory through August.

Cruise ships to make rare stop in Puerto Rico city

FBI investigation does not affect rating of Puerto Rico's PRASA

An investigation by the U.S Federal Bureau of Investigation into activities at the Puerto Rico Aqueduct and Sewer Authority (PRASA) will not impact the agency's credit rating, Standard & Poor's said on Wednesday.

The FBI launched a surprise raid at PRASA on Tuesday. The head of the commonwealth agency said the probe was focused on a single case and not the entire agency.

S&P's comments come as PRASA, which the agency rates BB-minus, is preparing a bond sale of at least $770 million in the first half of 2015, $500 million of which will be new money intended for investments.

"We will continue to monitor the situation for materiality, especially as it relates to PRASA's ability to renew or otherwise extend its committed lines of credit, and possibly convert draws on those lines to long-term debt," S&P said in a statement.

PRASA has about $3.4 billion in senior-lien revenue bonds, according to S&P. It also has nearly $280 million in rated debt, plus another $870 million in unrated debt that is backed by the Commonwealth of Puerto Rico, S&P said. (Reporting by Edward Krudy; Editing by Leslie Adler)

FBI investigation does not affect rating of Puerto Rico's PRASA -S&P

Puerto Rico threatened with transit shutdown in political spat

Puerto Rico's public transit system will shut down on Monday if lawmakers do not increase a tax on oil, the U.S. commonwealth's Government Development Bank said, accusing politicians of taking an "irresponsible" gamble on the island's economy.

The possible shutdown of Puerto Rico's buses and commuter train services, affecting 75,000 commuters, would be a major escalation of the island's debt crisis and would threaten its fragile economy.

It would come as a further blow to residents already facing budget cuts and paying among the highest electricity costs in the United States.

The move is scheduled to come when citizens return from their Thanksgiving break and ramps up the pressure on politicians to resolve their wrangling over the tax hike, which was to back a loan for its highways authority.

"It is irresponsible to continue playing with (Puerto Rico's) economic and fiscal stability," the GDB said in a statement. "The immediate consequences of these actions are already evident: public employees out of work and citizens on foot in the height of the holiday season."

Puerto Rico is struggling with a debt load of more than $70 billion and an economy that has been in or near recession for eight years. The latest data showed economic activity continued to slide last month and is the lowest in 20 years.

Governor Alejandro Garcia Padilla has been unable to convince enough members of his party to back a 68 percent increase to a tax on crude oil, which was expected to be passed last week. He convened a special session of the legislature on Monday, but lawmakers called a recess until Dec. 1.

The governor, whose popularity is sinking in the polls ahead of elections in 2016, appears to be just one vote short despite attempts this week to rally lawmakers. Some of them want to wait to pass the measure with a package of tax reforms expected in early 2015 to lessen the political hit from unpopular tax measures.

Padilla has been losing support after delivering an austerity budget that cut spending by $1.4 billion.

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



TRANSIT THREATENED

While the transit links only serve a small proportion of Puerto Rico's 3.6 million population, the closure would be a indictment of the government's ability to run basic services.

The shutdown would immediately affect rail and bus services, but boats could be threatened in the future.

"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 on Monday. Tren Urbano is a commuter train service.

The island's Highways and Transportation Authority does not have sufficient income or liquidity to meet its payroll obligations for December, the bank said in a statement, adding that meant public transport services will close on Monday.

Puerto Rico has delayed a bond sale of up to $2.9 billion until early 2015 which it had been aiming to complete this year using the proceeds of the oil tax increase. The government planned to increase its tax on crude oil by $6.25 per barrel, to $15.50, to raise $178 million a year to back the bonds.

Without proceeds from the bond sale, the island could also lack the liquidity to meet government emergencies in 2015, the GDB said. It has contingency plans to postpone loans for public works and stop disbursement of municipal and government loans, it said.

Ratings agency Moody's Investors Service said the island faces financial trouble next year if it is unable to complete the transaction.

(The story corrects third paragraph from bottom to state that planned oil tax increase was by $6.25, not from $6.25)





(Reporting by Edward Krudy in New York; Editing by Megan Davies, Chris Reese and Lisa Shumaker)

By Edward Krudy

Puerto Rico threatened with transit shutdown in political spat

Mass transit shutdowns around corner as oil tax hike still stuck in Capitol

Puerto Rico lawmakers were called back to the Capitol for a special session Monday as Gov. Alejandro García Padilla pushes for passage of a step hike in the petroleum tax to bail out the debt-ridden and cash-strapped Highways & Transportation Authority and keep mass transit systems in operation. However, both the House of Representatives and Senate recessed until December 1 without taking up the legislation.

The bill would need 26 of the 28 PDP votes in the House, but some members of the majority delegation still oppose the tax hike. García Padilla said Monday he needs just one more vote, but sources said the measure is still several votes short of exiting the lower chamber.

The session was called as administration officials ramp up pressure for passage of the tax increase, saying mass transit services could skid to a halt if the HTA doesn’t get bailed out. The government has resorted to placing advertisements in local Spanish-language media outlets warning of dire consequences of not passing the legislation including broken roads and laid workers.

García Padilla said Monday that HTA and the Integrated Transport Authority would shut down next Monday due a lack of liquidity to cover payrolls.

“The Metropolitan Bus Authority and the Urban Train will shut down December 1 because they don’t have money for payroll,” the governor said in a radio interview.

The Maritime Transit Authority, which operates the ferries to offshore island towns of Vieques and Culebra, has “several more months,” García Padilla said.

The special session comes after the legislation hit a wall when the House of Representatives and the Senate pushed through separate last-minute bills that failed to exit the Capitol before the deadline earlier this month. In light of the impasse over the tax hike in the House, legislation to give the HTA a short-term shot of up to $45 million for payroll and operational costs was filed and approved by the lower chamber on the last day of the regular session. The money would come from cigarette taxes and feed a new fund managed by the Government Development Bank. The measure wasn’t taken up by the Senate before the close of the legislative term and was rejected by La Fortaleza.

La Fortaleza has said the House “didn’t finish the job” of considering a bill to surge the petroleum excise tax from $9.25 to $15.50 per barrel. The levy had been increased from $3 just last year.

García Padilla and other administration officials have said consumers will not feel the tax hike when fueling up their automobiles. Gasoline retailers have said the higher levy could drive up pump prices despite falling oil prices.

La Fortaleza has said the legislation is needed to “move forward on infrastructure projects that are necessary for the island’s economic development.”

Many investors and analysts believe the HTA will follow the Puerto Rico Electric Power Authority in moving to restructure its long-term debt, but government officials insist they are working to resolve the public corporation’s fiscal challenges without resorting to the Recovery Act.

Puerto Rico government officials had detailed plans last month to borrow up to $2.5 billion in a bond deal backed by a proposed new hike in the crude oil and petroleum products tax. The issue is now expected to reach up to $2.9 billion and the target has been pushed up to this month instead of early next year.

As reported previously by CARIBBEAN BUSINESS, the move is being undertaken to erase a $1.9 billion loan from the books of the GDB in light of its dwindling cash reserves.

The $1.9 million loan on the GDB’s books was made to the HTA, mostly for public works, but market conditions and the public corporation’s own fiscal problems have prevented it from returning to the market to undertake a bond issue to pay off the GDB loan.

The bill would transfer the loan to the Infrastructure Financing Authority (PRIFA) along with the means to pay for it via revenue produced by hikes in the crude oil and petroleum products that were undertaken in June 2013. The new bill increases these taxes further to cover operational budget gaps in the HTA, including its mass transit assets that are being spun off into a new public corporation.

The bill adjusts the excise tax on the barrel of crude oil, at a time when oil prices has decreased significantly; the increase will be bring this excise tax to $15.50 per barrel. This tax is expected to generate an additional $178 million per year. The taxes would be distributed as follows: $6.00 per barrel for the PRHTA to cover its operational costs and debt service obligations, $8.25 per barrel for the PRIFA to cover debt service, and $1.25 per barrel to finance the new Integrated Transportation Authority, which comprises the Metropolitan Bus Authority bus services, the ferry services (Maritime Transportation Authority) and the Urban Train system, once their transferred is completed.

GDB officials say the tax hike will provide funding to operate Puerto Rico’s highways network, protect thousands of public and private jobs, and continue to provide maintenance to the road network, the Urban Train operation, and the bus and ferry services.

The measure explicitly excludes the taxation of crude oil and its by products used by the Puerto Rico Electric Power Authority to generate electricity, as well as those that are exported from Puerto Rico; those used by local refineries and petrochemical companies in the oil refining process; and those used as lubricants or fuel for aircrafts and shipping vessels traveling by air or sea between Puerto Rico and other places; among other exclusions.

The transfer to PRIFA is needed because, “it is necessary to identify an entity that has better access to the market to assume the HTA’s debt and, in this way, repay the debt to the GDB,” GDB officials said.

The legislation also provides additional guarantees and legal protections to investors to make the bonds offering more appealing.

Puerto Rico bonds have been hit by a series of downgrades since the enactment last June of the Puerto Rico Public Corporations Debt Compliance & Recovery Act (Recovery Act), which outlines a local bankruptcy-like procedure for most public corporations to restructure their debts. When the bill to transfer the debt to PRIFA from HTA was first filed, it caused alarm among some analysts and investors who saw it as clearing the way for the HTA to restructure its nearly $5 billion in outstanding bond debt without harming the GDB. Both GDB and PRIFA are barred from restructuring its debts under the Recovery Act.

Mass transit shutdowns around corner as oil tax hike still stuck in Capitol