Fitch Places Certain HTA Bonds on Negative Watch
SAN JUAN – Fitch Ratings placed Monday the following bond issues of the Puerto Rico Housing Finance Authority (PRHFA) on Rating Watch Negative.
–$384.5 million Puerto Rico Housing Finance Authority Capital Fund Modernization Program Subordinate Bonds (Puerto Rico Housing Projects), Series 2008 (Non-AMT) rated ‘A’;
–$200 million Puerto Rico Housing Finance Authority Affordable Housing Mortgage Subsidy Program Single Family Mortgage Revenue Bonds, Portfolio XI rated ‘AAA’;
–$165.6 million Puerto Rico Housing Finance Authority Mortgage- Backed Certificates, 2006 Series A rated ‘AAA’.
The credit-rating company wrote Monday that the Rating Watch Negative reflects the “negative implications” of the passage of the Puerto Rico Oversight, Management and Economic Stability Act (Promesa).
Section 405 of the Act entitled “Automatic Stay Upon Enactment,” states that “The establishment of an Oversight Board for Puerto Rico operates with respect to a Liability as a stay of” all actions by holders and their representatives to enforce a liability of the commonwealth or any of its territorial instrumentalities. Liability is broadly defined to encompass debt instruments generally.
The automatic stay lasts for an initial period and is subject to extension by the board. At the end of the stay period, an entity can file insolvency proceedings and can then progress as if in a chapter 9 proceeding, subject to specific purposes of the act. The legislative stay ends six months (February 2017) unless extended by the board for 75 days or for other limited circumstances.
Of note is Section 405 (l) which allows the instrumentality to pay its debts as they become due during the stay period.
Although the security liens created by the bond indentures remain unaffected and Fitch is not aware of any issuer incentive to disrupt the timely payment of debt service on these bonds, Fitch notes the trustees’ lack of ability to enforce security and covenant provisions of indenture against the agency while the stay is in force.
Fitch will resolve the Negative Watch following discussions with each of the bonds’ trustee and with the agency to confirm that payments can and are intended to be made during the stay period, and that there are no additional administrative procedures necessary to ensure that debt service is paid on a timely basis going forward. Fitch will also consider whether the bonds would have special revenue status under the provisions of PROMESA if a subsequent insolvency proceeding was initiated by the authority.
The capital fund bonds are secured by payments Puerto Rico Public Housing Administration’s (PRPHA) public housing HUD capital fund annual appropriations. The next scheduled debt service payment date is December 1, 2016.
The single family mortgage bonds are limited obligations of the issuer secured by the revenues and assets pledged in a trust indenture that consists of Ginnie Mae (GNMA) and Fannie Mae (FNMA) mortgage backed securities (MBS). Interest is paid on the first of each month; the next principal payment date is Dec. 1, 2016.
The mortgage-backed certificate bonds are limited obligations of the issuer secured by the revenues and assets pledged in a trust indenture that consist of GNMA and FNMA MBS; the certificates pay monthly on the 29th.
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