PR government secures financing deal with Royal Bank of Canada - Caribbean Business

2/10/14 1:30 PM

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PR government secures financing deal with Royal Bank of Canada

Issued : Monday, February 10, 2014 10:35 AM

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PR government secures financing deal with Royal Bank of Canada

By PHILIPE SCHOENE ROURA, XAVIRA NEGGERS CRESCIONI & JOHN MARINO cbprdigital@gmail.com

ARIBBEAN BUSINESS learned last Friday that the Puerto Rico government has secured between $2 billion and $2.5 billion in a private financing deal through the Royal Bank of Canada, spearheaded by former Gov. Sila Calderns son, Francisco Xavier Gonzlez, according to a Capitol Hill source.
The deal would prevent the commonwealth from having to bow down if bond markets issue terms that are too unfavorable or fail to produce sufficient demand for the $3.5 billion in debt the legislature approved raising last week. Since November 2010, Gonzlez has been managing director of Royal Bank of Canadas (RBC) Capital Markets U.S. Municipal Finance Group, which makes him a perfect fit to be drumming up a deal with the commonwealth. With $101.2 billion in market capitalization, RBC has the wherewithal for such a deal. Before joining RBC, Gonzlez worked 19 years as an investment banker for Goldman Sachs, most recently as a managing director in the firms Public Sector & Infrastructure Group. Gonzlez was reportedly responsible for obtaining a $400 million short-term loan for the Government Development Bank in 2013, which would have become a long-term bond at 11 percent if it hadnt been paid within the year, the Capitol Hill source said. While government officials were scrambling for private financing to avoid going to market, they also reviewed a similar deal with a Latin American syndicate in the neighborhood of several billion. That deal, which involves between four and six banks from Latin America, would pool together $2 billion to $4 billion. Among the banks mentioned by two sources close to the negotiation are Venezuela-based Banesco, Espritu Santo Bank from Brazil and a Panamanian bank. The banks would form a syndicate to provide a
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PR government secures financing deal with Royal Bank of Canada - Caribbean Business

2/10/14 1:30 PM

bailout package, said the CB source who wished to remain anonymous. The syndicate would pay the immediate debt payment [triggered by the downgrade], which is due by May. They would pay more than $2 billion, and then another $940 million and another $100 million going toward the budget and to stimulate the economy. Low-hanging fruit Lots of pitch books are being made up [for unsolicited offers to bail out the government]. Thats what these big banks and investors are doing; they are looking to grab some low-hanging fruit, one local investment banker said. These investors would make money by lending the cash-strapped commonwealth what it needs to get over the liquidity crisis set in motion by S&Ps recent downgrade of Puerto Rico general-obligations bonds to junk. These investors would set stricter terms with the government for repayment, as well as interest, which could range from 11 percent to 15 percent. Once this small group of investors makes the loan and gleans initial commissions, they most likely would reduce their risk by selling the loan off to a larger group of investors through company or private hedge funds, investment bankers said. Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym) bonds remain a likely vehicle, especially as they have so far held on to their investment-grade rating. A new Municipal Revenue Financing Corp. is another likely option, and sources said that a fresh legal opinion

on the structure is expected to be ready to present to investors during the Feb. 12 investors teleconference. Large U.S. banks have stopped lending to Puerto Rico, according to two sources. While talks are on with local banks regarding a loan, local financial institutions would be hard-pressed to provide the governments financial needs but will likely step up with some financing, sources said. The Puerto Rico government has also been in talks for a potential hedge-fund loan, which large financial institutions like Morgan Stanley and Barclays have been promoting, sources said.

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