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Panel considers $80M nonrated bond
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Posted on Dec 15 1998
The government is considering issuing $75 million to $80 million worth of nonrated bonds to raise cash to match Capital Improvement Projects funds, Commonwealth Development Authority Chairman Juan S. Tenorio said yesterday.
He said the Revitalization Task Force, of which CDA is a member, made the decision in a last-ditch effort to source out an estimated $85 million in federal grants that have not been tapped since 1995.
“Right now, we have no choice. It’s important to borrow money,” Tenorio said.
Use of federal funds decreased greatly in the past three years out of a combination of the former governor’s reluctance to tap them and the lack of matching funds to draw them out.
Unable to finance stalled public works, the government opts for a bond issue, Tenorio said.
Tenorio said the task force has had consulted with at least four international bond underwriters — Morgan Stanley, Merrill Lynch, Ben Weaver and Academic Capital.
They had recommended a nonrated bond as a way out of the crisis, he said.
Nonrated bonds are not evaluated by rating agencies; they therefore are less attractive to buyers and carry higher interest rate because of their inherent risks.
Tenorio said at current market condition a nonrated bond pays about 6.3 percent interest rate, whereas a bond rated AAA goes out for 5.1 percent.
Based on that assumption, he said, the government would have to pay more than $7 million in interest in 25 years.
A new CNMI law limits use of bond proceeds to funding government projects, matching CIP funds and paying back U.S. government loans.
