PRASA Extends Bank Deadline After Bond Delay

The Puerto Rico Aqueduct and Sewer Authority successfully managed a Friday deadline for two letters of credit totaling $150 million, reducing the debt and winning a delay in the due date.

According to Standard & Poor's analyst Theodore Chapman, the authority completed an agreement with Banco Popular and Oriental Bank, which Chapman called a credit positive.

Approaching the deadline PRASA owed $75 million to each bank. It had expected to sell a several hundred million dollar bond this spring that would have paid off the lines of credit as well as covered anticipated capital needs.

However, Puerto Rico's government has moved more slowly than anticipated in passing tax increases that investors were seeking. This has led to a sour market for new Puerto Rico debt, which delayed PRASA's bond sale.

On Friday PRASA completed an agreement with Banco Popular to expand the line to $90 million. PRASA took $60 million cash on hand and the extra $15 million from Banco Popular to pay off Oriental Bank, according to Chapman.

PRASA expects to sell a bond by the new deadline for the Banco Popular letter of credit, Aug. 31. The bond proceeds will be used to pay off the LOC and generate funds for capital needs.

Chapman said that PRASA doesn't have the cash reserve and cash flow problems of other Puerto Rico entities. However, it does have substantial mandatory capital spending requirements.

It also may be required to shift its cash reserves to the Government Development Bank for Puerto Rico. While its money is not subject to claw-back by the central government, if its reserves were shifted to the GDB "it becomes uncertain as to the immediacy to which PRASA would have access to its own funds in the event of a commonwealth liquidity crisis."

S&P currently rates PRASA CCC-plus, at the same level it rates the commonwealth government. Unless PRASA becomes completely delinked to the commonwealth, S&P will not give PRASA a higher rating than it gives the commonwealth.

PRASA has no immediate liquidity challenges, Chapman said.

For reprint and licensing requests for this article, click here.
Puerto Rico
MORE FROM BOND BUYER