• The Star Staff

PRASA aims to lower debt with $1.4 billion refinancing

By The Star Staff

The Puerto Rico Aqueduct and Sewer Authority (PRASA) is planning a $1.4 billion bond refinancing to reduce the debt of some of its outstanding revenue bonds, according to information in a notice issued to the markets.

If the bond issue becomes a reality, it will be the first time PRASA has returned to the markets since 2012. In 2015, PRASA attempted to go to the markets with a $750 million bond issue but it was halted because that was the year then-Gov. Alejandro García Padilla announced the island was not going to be able to pay its debt.

According to documents, the bonds, which are expected to be available for delivery by December, will be exclusively sold to no more than 35 qualified institutional buyers (QIBs) under Rule 144A of the U.S. Securities and Exchange Commission (SEC).

Rule 144A modified certain SEC restrictions on trades to allow securities investments to be traded among qualified institutional buyers, and with shorter holding periods -- six months or a year rather than the customary two-year period. While the rule, introduced in 2012, has substantially increased the liquidity of the affected securities, it has also drawn concern that it may help facilitate fraudulent foreign offerings and reduce the range of securities on offer to the general public.

An investor is dubbed a QIB if they are thought to require less regulatory protection than unsophisticated investors. QIBs can be a corporation that the SEC classifies as an accredited investor, a bank, trust fund, pension plan or any entity comprising sophisticated investors.

The 2020 senior bonds will be issued as fully registered bonds without coupons in denominations of $250,000 principal amounts. In the opinion of Nixon Peabody LLP, the bond counsel, under existing law the gross interest of the gross income of the new bonds will be exempted from federal law.

The proposed bonds are not a debt of the commonwealth.

Buyers of the proposed bonds must agree to certain changes to the trust agreement. For instance, the amendments would revise the pledge of the PRASA revenues from a gross revenue pledge to a net revenue pledge. Annual debt service is being calculated based on when PRASA is required to make deposits to the respective bond funds rather than when the date on which principal and interest is due and payable.

The federal Financial Oversight and Management Board had authorized PRASA to issue bonds at its Nov. 20 meeting.

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