Monday, October 18, 2021

Prasa Issues $1.66 Billion in Refunding Bonds

By on August 19, 2021

SAN JUAN – The government of Puerto Rico announced yesterday that a bond offering to refund all of the Puerto Rico Aqueduct and Sewer Authority’s (Prasa) 2012 Series A and B Senior Lien bonds was successfully executed, marking the second time since December that the utility has accessed the capital markets to achieve “substantial reductions” in annual debt service. 

The refinancing, which was priced on Tuesday, will generate approximately $570 million in debt service savings over the life of the refunding bonds, Omar J. Marrero, executive director of the Puerto Rico Fiscal Agency and Financial Advisory Authority (Aafaf) said in a press release. He explained that the refinancing was done through a series of transactions that included an exchange, a tender for cash, a current taxable refunding, and a forward delivery refunding.  

Marrero said that $1.8 billion of Prasa’s 2012 Revenue Bonds Series A and B (Senior Lien) were refinanced through the issuance of $1.66 billion in Revenue Refunding Bonds, Series 2021A (Senior Lien); Revenue Refunding Bonds, Series 2021B (Senior Lien); Federally Taxable Revenue Refunding Bonds, Series 2021C (Senior Lien); and Revenue Refunding Bonds, Series 2022A (Senior Lien) (Forward Delivery). A total of $208 million in premium was received due to the sale of the new bonds. 

“This bond issue is one of the biggest financial achievements since the enactment of PROMESA, as it demonstrates that PRASA once again has been able to access the institutional capital markets at reasonable rates and regained market confidence,” Marrero said in the release. “We welcome the receptivity and support from investors and look forward to strengthening this partnership further.” 

Prasa Executive President Doriel Pagán Crespo added that through the “successful pricing” of the bond deal, Prasa achieves average debt service savings of approximately $22 million per year, which she said will be used to address “operating needs or fund capital expenditures.”  

The new bonds have similar maturities to the refunded bonds, and savings are being achieved every year, Pagán said. 

The all-in interest cost, including expenses associated with pricing and selling the new issue, was 3.24%, according to the press release, which noted that Barclays Capital Inc. led the transaction, as lead manager and book-runner of the banking syndicate, and included BofA Securities, Jefferies LLC, and JP Morgan as co-senior managers. 

The press release said that the debt service relief of $570 million over the life of the refunding bonds does not extend the maturity of the refunded bonds or increase the total amount of Prasa debt. The transaction resulted in “obtaining additional support from Prasa’s bondholders towards allowing Prasa to prioritize operating expenses and ensuring all of its stakeholders are protected by effecting a change in the priority of payment of its senior obligations to return to a net revenue pledge from the current gross revenue pledge structure.” 

By purchasing the new revenue refunding bonds, “investors are consenting to move to a net revenue pledge once all other senior debt holders, including the federal agencies to which Prasa owes approximately $1 billion in loans, consent to such change,” according to the release. 

Moreover, the release states that “there is currently no specific timeline for when the consent of all remaining senior creditors will be sought, or if such consent will be obtained, but after this issuance, Prasa will have received consent from 74% of holders of its senior debt,” adding that the change will become effective only if and once 100% of all holders of senior obligations consent. 

Hector Del Río, chairman of Prasa’s governing board, added that “the successful execution of the refinancing in December 2020 and the current transaction speak to how far Prasa has come over the past several years despite the challenges we have faced.” He said that reducing Prasa’s annual debt service requirement by an average of $35 million per year and approximately $920 million during the life of the bonds through the execution of the two refinancings is “an impressive result.” 

“We are extremely proud of the achievements of Prasa’s team and grateful for the unwavering commitment of our employees who, through their actions, have demonstrated the quality and professionalism of dedicated public servants,” Del Río said in the release. 

Pagán said that thanks to the last two refunding transactions, the modification of Prasa’s federal debt in July 2019, and the Federal Emergency Management Agency (FEMA) grant award of $3.7 billion announced in January, the utility has been able to reduce debt service by a total of $740 million through the fiscal year 2030. The Prasa chief said this would ensure funding for its capital improvement plan and disaster recovery efforts, which she said will allow Prasa to be “financially sustainable and invest in its infrastructure for years to come.” 

In December, Prasa issued $1.4 billion in Series 2020 revenue refunding, with an all-in interest cost of 4.36%, generating over $200 million in savings. 

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