Commonwealth returns to the markets after 6 years, seeks to refinance bonds, produce debt service

By The Star Staff

Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF by its Spanish initials) Executive Director Omar Marrero Díaz announced Wednesday that AAFAF, the Housing Financing Authority (HFA) and the Public Housing Administration (PHA) will seek to refinance the outstanding HFA bonds with the goal of generating debt service savings.

It will mark the return of Puerto Rico to the markets after at least six years. The estimated $248 million bond issue is expected to be priced the week of Sept. 28.

“In our role as financial advisor to the Government of Puerto Rico and its instrumentalities, we have determined that it is in the best interest of HFA, PHA, and the People of Puerto Rico to take advantage of current market conditions and seek opportunities for reductions in the debt service of the existing public debt,” Marrero Díaz, who also serves as the chief financial officer of the Puerto Rico government, said in a statement.

Currently, HFA has some $300 million in outstanding bonds issued under the Capital Fund Program of the federal Department of Housing and Urban Development (HUD), maturing between 2020 and 2027. HFA originally issued the bonds in 2003 and 2008, the proceeds of which were lent to the PHA and, in accordance with the purposes of the federal program, were used to pay the costs of improvements and modernization of public residential projects throughout the island. The principal of and interest on the HFA bonds are payable solely from annual federal appropriations of the U.S. Congress to fund public residential modernization and improvement projects. The HFA bonds do not constitute a debt, obligation or pledge of the full faith and credit of the commonwealth or any of its instrumentalities or political subdivisions. The proposed refunding would be achieved through the issuance of new bonds under HUD’s Capital Fund Program. The issuance of the new bonds has been approved by the Financial Oversight and Management Board for Puerto Rico and HUD.

In addition, Standard & Poor’s has assigned a AA- credit rating to the proposed refunding bonds. The final size, timing and structure of the anticipated transaction are subject to market conditions and other factors. PHA is responsible for the development and operation of the public housing units and receives grants and subsidies from HUD. PHA’s goal is to improve the quality of life in public housing units, promote community activity and the integral development of Puerto Ricans who live in such housing projects by means of a highly efficient administration.

According to the statement, it is important to note that even though the source of repayment of the new refunding bonds consists of HUD appropriations, any debt service savings realized as part of the transaction will result in additional funds being made available to PHA to fund its mission and objectives. Likewise, HFA provides financing options for low- or moderate-income families and other services to create and preserve affordable housing on the island, which contributes to the socioeconomic development of Puerto Rico, the statement says.