Puerto Rico water utility issues $1.37 billion in refunding bonds

Shows Prasa regained access at ‘reasonable rates,’ official says

SAN JUAN – Gov. Wanda Vázquez Garced announced Thursday the “successful execution of a bond offering to refund a portion” of the Puerto Rico Aqueduct and Sewer Authority’s (Prasa) outstanding bonds. 

“We are pleased to announce that this bond issue marks the Authority’s return to the capital markets after eight years. These are excellent and encouraging news for PRASA and for Puerto Rico. Our government has worked hard for PRASA to return to the markets as part of Puerto Rico’s economic recovery, and today it is a reality,” the governor said. 

As priced today, the refinancing “will generate approximately $350 million in debt service savings over the life of the refunding bonds,” according to a joint statement issued by the Puerto Rico Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym).

Aafaf Executive Director Omar J. Marrero Díaz explained that “$1.1 billion of PRASA’s 2008 Revenue Bonds Series A and B (Senior Lien) and $284.8 million of 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 media release reads. 

“The all-in interest cost, including expenses associated with pricing and selling the new issue, was 4.36%,” Prasa President Doriel Pagán Crespo said.

“The refinancing results in substantial benefits for PRASA, the Government and the people of Puerto Rico, including (i) debt service relief to PRASA of approximately $350 million over the life of the refunding bonds without extending the maturity of the refunded bonds, (ii) elimination of $284.8 million in Commonwealth guarantees over the 2008 Revenue Refunding Bonds Series A and B (Commonwealth Guaranteed), and (iii) marking the first step towards allowing PRASA to prioritize operating expenses and ensuring all of its stakeholders are protected, to effect 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,” Marrero said, with the release adding that “by purchasing the 2020 Refunding Bonds, investors are consenting to move to a net revenue pledge once all other senior bonds, including the federal agencies to which PRASA owes approximately $1 billion in loans, consent to such change.”  

The island’s fiscal agent said there is no “specific timeline for when the consent of all remaining senior creditors will be sought, or if such consent will be obtained. The change will become effective only if 100% of all holders of senior obligations consent.”

Marrero called the bond issuance one of the biggest financial achievements since the enactment of the Puerto Rico Oversight, Management and Economic Stability Act (Promesa), “as it demonstrates that PRASA has been able to regain market confidence and market access at reasonable rates.”

Through the “”successful pricing of the bond deal, PRASA achieves average debt service savings of almost $13 million per year, that will be used to reduce existing operating deficits or funding capital expenditures,” Prasa’s Pagán said. “The new bonds have similar maturities to the refunded bonds and savings are being achieved…every year through maturity without extending the maturity of the bonds and without postponing principal amortization. Also, demand for the bond deal from traditional investors was strong with over $3.1 billion in indications of interest, producing a demand that far exceeded the amount of bonds available.

“Considering the benefits from this transaction, and the benefits from the modification of PRASA’s federal debt last year, the Authority has been able to reduce debt service by a total of $525 million over the next 10 years, and guarantees of the Commonwealth over PRASA debt has been reduced by almost $1.3 billion,” Pagán added. 

The statement included PRASA Governing Board Chairman Héctor Del Río, whoo said that “although we acknowledge there’s still a long road ahead, this transaction evidences how far we have come over the past several years despite the challenges that we have faced. We are extremely proud of the achievements of PRASA’s team and grateful for the unwavering commitment of our employees who, through their actions and commitment, have demonstrated the quality and professionalism of dedicated public servants. Furthermore, the successful execution of this important transaction has special meaning for the PRASA family, as it allows us to perpetuate the legacy of Efraín Acosta Reboyras, former Director of Finance, who sadly passed away in August of this year. Efraín’s guidance, leadership and friendship will be deeply missed by all of us who had the honor of knowing him.”

The transaction was led by Barclays Capital Inc., “as lead manager and bookrunner of the banking syndicate,” according to the release.

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