Puerto Rico yesterday sold $400 million of tax and revenue anticipation notes, marking its first venture into the competitive note market since 1974.
The securities were re-offered to investors at a yield of 2.50%.
The commonwealth's decision to sell notes competitively was considered for more than a year, according to the president of the Government Development Bank of Puerto Rico, the commonwealth's financial adviser for the sale of public debt.
"Although we have sold bonds through competitive sale, it is the first time since 1974 that we felt the timing was right to offer notes this way," said Jose Berrocal, the bank's president. "We felt that because major issuers are moving to diversify their offerings between competitive and negotiated sale, we will do the same."
Mr. Berrocal said selling the notes competitively would save the commonwealth money.
There were 54 bids for the notes, with the top four bids receiving the notes, Mr. Berrocal said. The minimum bid for lots was $25 million, according to Charles F. Zimmerman, senior vice president and New York City director at the bank.
A representative of First Boston Corp., one of three firms awarded the notes, said bidding was extremely competitive.
Dean Witter Reynolds Inc. submitted the two lowest bids. The firm bought one $25 million block of notes with a net interest cost of 2.50% and a $25 million block with a net interest cost of 2.57%.
Kidder Peabody & Co. purchased $50 million of the notes with a net interest cost of 2.58%, and First Boston purchased the remaining $300 million with a net interest cost of 2.593%.
J.P. Morgan & Co. had the cover bid for $100 million of the notes with a true interest cost of 2.594%.
Mr. Berrocal said the combined net interest cost was 2.56%.
"There appears to be good investor demand for the notes," said the First Boston spokesman. "These notes always move out pretty well because they are triple tax-free and Moody's rates them a MIG-1."
MIG-1 is the highest short-term tax-exempt rating that Moody's Investors Service offers. Standard & Poor's Corp. rates the notes SP-1-plus, the agency's highest short-term rating.
Mr. Berrocal said this is the earliest in the fiscal year the commonwealth has issued tax and revenue anticipation notes.
"With interest rates as low as they are now, we decided there was no better time to price these notes," Mr. Berrocal said.
A provision in the Puerto Rico Constitution limits short-term debt in one fiscal year to $800 million.
Mr. Berrocal said that because of an Internal Revenue Service regulation, $400 million was chosen for this offering.
"The law says the commonwealth must use 90% of the funds raised in short-term financings in six months or less," he said. "So we can still sell $400 million of new notes, if necessary."
Mr. Berrocal and Mr. Zimmerman said the ability to attract new business and industry has enabled the commonwealth to avoid downgrades and ride through the recession in good shape.