Moody’s Investors Service yesterday changed the outlook on the Puerto Rico Port Authority to negative from stable as the it faces $210.5 million of bank debt that will come due in fiscal 2010.
The PRPA has $51.7 million of senior-lien bonds outstanding and $668.4 million of subordinate debt through lines of credit and bank notes.
Moody’s rates the credit Baa3. Standard & Poor’s in late February downgraded the authority to BBB-minus from A-minus, citing weakening debt service coverage and borrowing to meet interest payment costs.
In its report, Moody’s pointed to upcoming refinancing risk and the PRPA’s ability to access the market in order to maintain its investment-grade rating.
Fernando Batlle, executive vice president of financing and treasury at the Government Development Bank for Puerto Rico, the authority’s fiscal agent, declined to say how much of the $210.5 million might be converted into long-term debt through the sale of bonds. Moody’s report indicates that officials are considering $72 million of bonding in fiscal 2010 and extending maturities on the remaining debt. It would then do another fixed-rate senior-lien bond sale in 2013.
“A passenger facility charge-backed note with Wachovia Bank NA requires a bullet payment of $72 million principal plus accrued interest and the authority expects to take out the obligation by issuing a PFC-backed bond before June 2010,” according to the Moody’s report.
Batlle said the authority will look towards refinancing a portion of the subordinated debt with bonds this year and also use its five-year restructuring plan to help tackle the remaining debt. That five-year strategy includes revenue increases and expense reductions.
“Part of that debt is backed by the passenger facility charges so there is a possibility — assuming that everything works out — that we could potentially bond out part of it,” Batlle said. “And whatever can’t be bonded out, the authority’s in the process of carrying out a comprehensive, five-year restructuring plan and ... as results materialize we might be able to then restructure that debt as well.”
On the positive side, first quarter results for fiscal 2010 show growth at the authority’s airports and seaports. In addition, officials anticipate revenue increases to help boost debt service coverage this fiscal year.
“Debt service coverage on senior-lien debt is expected to rise substantially in fiscal 2010 due to increased cruise passengers, stabilized airport empanelment, and certain rate increases,” according to Moody’s.
The PRPA, which oversees the Luis Muñoz Marin International Airport in San Juan, also may opt to enter the airport into a concession agreement. The agency will file in the near term its initial application to the Federal Aviation Authority to enter into the U.S. government’s pilot privatization program.
Officials are looking towards concession agreements to generate new money for the authority and to help pay down outstanding debt. Batlle said the PRPA will file its P3 application for the San Juan airport with the FAA very soon.
“We’re actually almost done with that in terms of the preliminary application,” he said.
Other issues for fiscal 2010 include San Juan airport’s air carrier operating agreement, which will expire June 30. The PRPA will need to negotiate with current carriers to continue operations.
“Given the poor economic conditions in Puerto Rico and the U.S, Moody’s notes a heightened potential that not all current carriers will sign the new agreement,” Moody’s said.
Conversely, the authority’s separate agreement with American Airlines does not expire until 2015.
Including the San Juan airport, the PRPA oversees 11 airports and nine seaport facilities throughout the island. The seaport operations consists of maritime and cargo business.
