Fiscal board approves $71 million bond issuance for health care institutions
By The Star Staff
As an end to Puerto Rico’s long bankruptcy appears to get closer, the Financial Oversight and Management Board for Puerto Rico has approved an approximately $71 million bond issuance by the Puerto Rico Industrial, Tourist, Education, Medical and Environmental Control Facilities Financing Authority (AFICA by its Spanish acronym) on behalf of Sociedad Española de Auxilio Mutuo y Beneficencia de Puerto Rico and Hospital Auxilio Mutuo de Puerto Rico.
Separately, the oversight board approved a $600 million fuel contract for the Puerto Rico Electric Power Authority (PREPA), which has been in bankruptcy since 2017 to restructure some $9 billion in debt.
AFICA is a public corporation of the island government created in 1977 to provide financing for the acquisition, construction and equipping of industrial, tourist, medical, educational, pollution control and solid waste disposal facilities through the issuance of private activity revenue bonds by acting as conduit issuer.
Auxilio Mutuo Hospital will use the Series 2021 bond proceeds to redeem outstanding debt for cash flow savings and to fund 20 healthcare projects at the aforementioned institutions, an oversight board statement issued last week said.
“Investments in the health care system of Puerto Rico are one of the priorities of the Oversight Board,” said Natalie Jaresko, the oversight board’s executive director. “The approved bond issuance through AFICA helps the hospital have lower financing costs via the tax-exempt debt market.”
“The people of Puerto Rico must be able to rely on their hospitals and health care providers to give the care they need,” she added.
The Series 2021 bond proceeds will refund $51.5 million of the Series 2011A bonds and any accrued interest, resulting in significant cash flow savings. In addition to the approximately $17 million of bond proceeds used for the 20 projects, the two institutions will invest some $25 million of their own capital combined in the purchase of new equipment, and $28 million for the construction of a new radiotherapy facility and improvements to several buildings at Hospital Auxilio Mutuo’s Hato Rey complex. Only the hospitals, not the commonwealth or AFICA, are obligated to pay the Series 2021 bonds.
Regarding the PREPA contract, the oversight board approved the proposed $606 million fuel contract with Puma Energy Caribe LLC for the Aguirre, Costa Sur, San Juan and Palo Seco power plants.
The contract price adder negotiated under PREPA’s enhanced procurement process represents an approximate 33% price reduction compared to the current minimum adder of $4.28. Puma provides PREPA with a credit cap of $200 million and a 60-day credit term. Four companies had provided proposals.
“The Oversight Board worked closely with PREPA to ensure a transparent and competitive bidding process that achieved the best possible price for the residents and businesses of Puerto Rico,” Jaresko said. “The Oversight Board has consistently requested improvement in PREPA’s contracting practices, to utilize best practices, ensure transparency, promote competition, and ensure the best possible pricing and terms for the benefit of all consumers. The new contract shows that prudent procurement practices achieve the best results. This contract is a big step forward, providing big savings on the adder fee portion of the fuel supply contracts.”
The proposed contract with Puma is a one-year agreement for the delivery and supply of no more than 1.6 million barrels of No. 6 fuel oil (bunker fuel) per month at market price with a fixed price adder of $2.88 per barrel and includes a provision allowing PREPA, at its sole discretion, to extend the contract for an additional year under the same terms.