PRASA evaluates possible $1.8 billion bond refinancing

By The Star Staff

The Puerto Rico Aqueduct and Sewer Authority (PRASA) is evaluating returning to the markets after four months with a $1.8 billion bond refinancing, according to an Electronic Municipal Markets Access filing.

PRASA is slated to refinance two series of outstanding revenue bonds issued in February 2012. The proposed sale will be a limited public offering led by Barclays Capital Inc. Bank of America Securities Inc., Jefferies LLC and JP Morgan Securities LLC will also work on the transaction.

The document did not have an exact date for when the bond refinancing is going to occur or the total amount of the proposed sale, but officials are counting on an appetite for high yield securities in the bond markets for the transaction to be successful, a PRASA source said. The bond refinancing seeks to reduce debt service payments.

The transaction would need the approval of the island Fiscal Agency and Financial Advisory Authority as well as the federal Financial Oversight and Management Board.

In August 2019, PRASA restructured its debt after reaching an agreement with the U.S. Environmental Protection Agency and the U.S. Department of Agriculture to provide PRASA with significant debt service relief through a consensual modification of the terms of almost $1 billion in outstanding loans previously made to PRASA under U.S. government programs.

The amended loan terms lowered PRASA’s debt service on the federal loans by about $380 million over the next 10 years. In addition, the new agreements called for the elimination of some $1 billion in guaranty claims against the commonwealth, while also providing PRASA with access to new federal funding through various clean water programs over the next five years to support PRASA’s ongoing effort to improve water quality and safety.

The restructuring paved the way for PRASA to return to the markets for the first time in eight years in December with a $1.4 billion bond refinancing to replace $1.2 billion in senior bonds issued in 2008 and $248.8 million in revenue refunding bonds. The refinancing saved the water utility $350 million in debt service over the term of the bonds.

PRASA can pay for its operating expenses and other obligations but does not have sufficient funding for capital improvements and is currently relying on federal disaster funds to rebuild its water infrastructure.

Last week, PRASA Executive Director Doriel Pagán Crespo presented the first work plan required by the Federal Emergency Management Agency (FEMA), under the FEMA Accelerated Award Strategy program, which will be updated every 90 days.

The work plan describes how the short-, medium- and long-term obligated funds will be used over a total period of 10 years. Specifically, it aims to measure the progress of the work done.

“The reconstruction projects will benefit the 78 municipalities,” Pagán Crespo said. “It is time to start executing and optimizing the ASA’s infrastructure. In the same way, I thank the staff of FEMA and the Office of Reconstruction and Recovery.”

“FEMA’s approval of $3.7 billion to the Aqueduct and Sewer Authority under the Grant Acceleration Strategy represents one of the most significant awards made by the agency. It is an unprecedented opportunity to rebuild in a more resilient and modern way the aqueduct and sewer systems of the island,” said Andrés García Martino, FEMA’s alternate federal coordinator of disaster recovery for Puerto Rico. “FEMA continues firm in its commitment to recovery in close collaboration with the government of Puerto Rico, its agencies and municipalities.”

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