Tuesday, October 20, 2020

Capital markets buy up refunded Puerto Rico housing bond issue

By on September 29, 2020

(File Photo)

Aafaf: Refinancing of $300M debt to generate $43M in savings   

SAN JUAN — The Puerto Rico Housing Financing Authority (PRHFA) and the Public Housing Administration (PHA) refinanced existing HFA bonds, generating approximately $43 million in debt service savings, the island’s Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym) announced Tuesday. 

Touting the commonwealth’s success in accessing the capital markets, Aafaf Executive Director Omar J. Marrero Díaz explained in a news release that the outstanding bonds were refinanced through the issuance of $249.6 million in Capital Fund Modernization Program refunding bonds. The transaction reduced the total prior existing debt of $300.5 million, he said, noting that “funds from the accounts of said issuances were used, and new bonds were sold at premiums that generated additional funds.”   

The refunding bonds will lead to annual debt service savings of over $8.5 million, which could be used to assist the Public Housing Modernization Program, said Marrero, who also serves as the chief financial officer of the commonwealth. He added that the new bonds have maturity dates similar to the outstanding bonds—from 2020 to 2028.  

“This deal is an important step in Puerto Rico’s return to the capital markets and proves that the market is reestablishing its trust in Puerto Rico,” the Aafaf chief said.  

Marrero stressed that “there was a substantial demand for the bond deal from traditional investors with over $750 million in indications of interest, producing a demand that exceeded more than three-fold the available amount of bonds.” The true interest cost, including expenses associated with pricing and selling the new issue, was 1.27%, he said. 

PRHFA currently has approximately $300 million in outstanding bonds issued under the Capital Fund Program of the federal Department of Housing and Urban Development (HUD), which have maturity dates between 2020 and 2027. Issued in 2003 and 2008, these bonds generated proceeds that were lent to the PHA and were used to pay the costs of improvements and modernization of public residential projects throughout the island, according to the Aafaf press release. 

The principal and interest of the refinanced bonds as well as of the new bonds are payable solely from annual federal appropriations of the U.S. Congress to fund public residential modernization and improvement projects through HUD. The PRHFA 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, according to Aafaf.  

“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 said housing projects by means of a highly efficient administration,” Marrero said. “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 this transaction will result in additional funds being made available to PHA fund its mission and objectives.” 

Likewise, PRHFA 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 Aafaf chief noted.