San Juan plans to borrow $356 million

Puerto Rico's largest city, San Juan, plans to borrow $356 million in bonds and notes in the near future.

The Puerto Rico Oversight Board approved the borrowing plans in a letter to Francisco Domenech Fernandez, executive director of Puerto Rico's Fiscal Agency and Financial Advisory Authority.

The city plans to sell $232.7 million general obligation refinancing notes and $123.5 million general obligation bonds to finance 14 public improvement projects.

Banco Popular de Puerto Rico will serve as underwriter for the notes. RBC Capital Markets will manage the bonds.

The Series A notes will have an annual interest rate of either 6.35% or a fixed rate equal to the 7-year U.S. Treasury yield plus a spread of 2.14%, which was equivalent to 6.31% as of April 30, whichever is higher. If the latter, the actual interest would be determined three business days prior to issuance.

The bonds would mature in 2051 and have variable interest rates with a maximum of 5.585%.

San Juan hasn't decided yet whether the bonds will be placed privately or sold publicly.

The San Juan bonds will be the first from a Puerto Rico municipality since the passage of the Puerto Rico Oversight, Management and Economic Stability Act in summer 2016. The Puerto Rico Aqueduct and Sewer Authority, which never defaulted, has issued bonds. There have also been municipal conduit bonds for toll highways issued since 2016.

In other Puerto Rico news, the Oversight Board approved the fiscal 2027 budget for Puerto Rico's central government Monday. Reached consensually with Gov. Jenniffer Gonzalez Colon, it is the second budget in a row balanced using modified accrual standards reached consensually with the local government since the start of PROMESA. The act requires four of these to be approved in a row, along with other factors, for the board to disband.

Board Executive Director Robert Mujica, Jr., said the budget was a step toward fiscal responsibility, however, he said budgets still need to be developed without the board's input, a capital budget must be created, reserves expanded, government accounting improved, and government agencies must become more efficient.

The government faces risks from slowing revenues, rising healthcare costs and funding gaps and student population decreases, Mujica said.

The government's most recent annual comprehensive financial report is for fiscal 2022 and this delay will hinder the government's ability to access the financial markets, something PROMESA requires for the board to disband, Mujica said.