New Bonds, Oil Tax Planned to Boost Puerto Rico GDB and PRHTA

Puerto Rico plans to help its Highways and Transportation Authority achieve self-sufficiency through an oil tax increase and the sale of bonds.

The PRHTA has operated with an operating deficit for several years, depending on the support of the Government Development Bank for Puerto Rico and Puerto Rico's General Fund.

On Friday GDB executive vice president José Coleman Tío said Puerto Rico's government was going to put the authority on a self-sufficient footing.

To help accomplish this, Gov. Alejandro García Padilla has directed the introduction of Puerto Rico House Bill 2212 to increase total taxes on oil by $6.25 per barrel.

The PRHTA currently receives $9.25 in taxes per barrel of imported oil. The bill would increase this tax to $15.50. Of the new total, $6 per barrel would continue to flow to the PRHTA to support its operating costs and for repayment of its bonds. A further $8.25 would go to the Puerto Rico Infrastructure Finance Authority. A final $1.25 per barrel would go to the newly founded public transit authority called the Integrated Transportation Authority.

PRIFA would sell up to $2.9 billion in bonds. These proceeds would be used to pay off the PRHTA's $2 billion debt to the GDB. They would be also be used to issue bonds to take out the PRHTA series 2013 bond anticipation notes.

By having PRIFA sell the debt rather than the PRHTA, Puerto Rico's government would employ an authority that is not eligible to restructure its debt under the Puerto Rico Corporations Debt Enforcement and Recovery Act of 2013, which set up a process for some of the island's public corporations to restructure their debt. Excluding the new debt from the scope of the recovery act is expected to make it an easier sell to investors.

Coleman Tío said he expected the first PRIFA bond to be at least $1 billion in size and be sold before April and perhaps before January. This money would be used to repay PRHTA notes due to the GDB.

The PRHTA currently accounts for about 21% of the GDB's loan portfolio, making it the GDB's biggest debtor.

House Bill 2212, the transfer of the money-losing Tren Urbano subway system to ITA, and other expense and revenue measures are expected to shift the PRHTA from deficit to surplus, said Natalia Guzman, advisor to the GDB president. After all the changes are made the PRHTA would be expected to have a positive cash flow of a very narrow $12 million a year.

Though refinancing of PRHTA's debt would not add to Puerto Rico's total debt, Puerto Rico would likely have to pay higher interest rates on the refinanced debt. The debt would be long-term rather short-term.

Oil prices have declined recently, GDB President Melba Acosta Febo pointed out in a statement after Thursday's webcast for investors. According to Bloomberg, prices per barrel for Brent crude oil fell to $82.60 on Oct. 16 from $115.71 on June 19.

The oil tax bill would not tax oil to be used by the Puerto Rico Electric Power Authority to generate electricity.

Along with financial benefits for the PRHTA and GDB, the measures would allow the PRHTA to engage in important construction and maintenance projects for its highway infrastructure, Acosta Febo said.

On Friday GDB Chairman David Chafey said that Assured Guaranty, Ambac, National Public Finance Guarantee Corp. and FGIC support Puerto Rico's recent actions refinancing a portion of PRHTA's debt and strengthening its bonds' income stream. These bond insurers control 72% of the revenue bonds under PRHTA's 1968 and 1998 resolutions.

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