PRASA returns to the bond market after 8 years

By Pedro Correa Henry

Twitter: @PCorreaHenry

Special to The Star

After eight years, the Puerto Rico Aqueduct and Sewer Authority (PRASA) returned to the markets Thursday with a $1.4 billion refinancing of its bonded debt that was sold to a limited number of buyers and will allow the utility to save money for capital projects.

PRASA President Doriel Pagán Crespo, Fiscal Agency and Financial Advisory Authority (AAFAF by its Spanish initials) Executive Director Omar Marrero Díaz and Gov. Wanda Vázquez Garced announced the return via a press release.

Pagán Crespo said “the Authority is achieving debt service savings averaging nearly $13 million per year, which will be used to reduce existing operational deficits or finance capital improvements” amid the successful reissue.

“The new bonds will have due dates similar to the refinancing bonds, and annual savings are being achieved up to the maturity date without extending the bonds’ maturity and without postponing the amortization of the principal [bonds],” the PRASA president said. “In addition, the transaction received substantial demand from traditional investors, with over $3.1 billion in interest indications, which caused demand to exceed the number of bonds available. The interest cost, including expenses related to the structuring and sale of the new issue, was 4.36 percent.”

Pagán Crespo added that with the benefits from the current transaction and its federal debt modification last year, PRASA has been able to reduce debt service by $525 million over the next 10 years.

What’s more, she said, “the Government of Puerto Rico’s guarantees on the Authority’s debt has been reduced by nearly $1.3 billion.”

Marrero Díaz said the refinancing was structured to save some $350 million in debt service over the term of the refinancing bonds. In addition, he said, $1.1 billion of the 2008 Revenue Bonds Series A and B (Senior Lien) and $284.8 million of the 2008 Revenue Refunding Bonds Series A and B (Commonwealth Guaranteed) are being refinanced through the issuance of $1.37 billion in new Revenue Refunding Bonds.

The AAFAF executive director said the third “substantial benefit” for PRASA will be to “take the first step that will allow PRASA to prioritize its operating expenses and ensure that all parties with an interest in PRASA are protected, as well as to make a change in the payment priority of its ‘senior’ obligations to recommit net income rather than the current structure,which commits gross income.”

Marrero Díaz added that by purchasing the 2020 Refunding Bonds, investors agree to switch to a structure that commits net income once all other “senior” bonds, including the federal agencies to which PRASA owes about $1 billion in loans, agree to the change. At the moment, there is no specific timetable for obtaining the consent of all remaining parties, or whether such consent will be obtained. The change will be effective only if all senior bondholders consent.

“This bond issue is one of the biggest financial achievements since the passage of the federal PROMESA [Puerto Rico Oversight, Management and Economic Stability Act] law, as it shows that PRASA regained the trust of and access to markets at reasonable rates,” Marrero Díaz said. “We are pleased with the responsiveness and support from investors and look forward to developing this partnership.”

The governor, meanwhile, called the return “excellent and hopeful news for PRASA.”

“Our government has worked hard to bring the public corporation back to the markets as part of Puerto Rico’s economic recovery, and today, it is a reality,” Vázquez Garced said.

Barclays Capital Inc. led the transaction as lead manager of the offering book and leader of the bank syndicate.

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