Puerto Rico Legislature Poised to Pass PRASA Bond Bill

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Puerto Rico's legislature may be poised to pass a bill to help the Puerto Rico Aqueduct and Sewer Authority sell as much as $900 million in bonds.

The bill allows the authority to set up the Corporation for the Revitalization of the Aqueduct and Sewer Authority, which would sell the bonds. PRASA expects the corporation will get a "better investment grade," according to a PRASA spokeswoman in an e-mail.

PRASA's senior-lien revenue bonds are rated Caa3 by Moody's Investors Service, CCC-minus by S&P Global Ratings, and CC by Fitch Ratings.

A conference committee of the Puerto Rico House of Representatives and Senate has already approved the bill, House Bill 2786. On Monday the House passed the measure. The Senate was expected to vote on it Monday or Tuesday. For it to become law, Puerto Rico Gov. Alejandro García Padilla would have to sign it.

The bill specifies that any current interest bonds sold would offer interest rates from 4% to 4.75%, depending on their rating. It specifies that any capital appreciation bonds sold would offer interest rates from 4.5% to 5.5%.

Local officials and U.S. Congress are trying to come up with a framework to restructure about $69 billion of public sector debt that the governor has said is unpayable under current economic conditions.

PRASA attempted to sell a $750 million bond in August for proceeds for its capital improvement plan. There was insufficient demand, even though there were rumors the authority was considering paying interest rates up to 10%. The bond wasn't sold.

The failure to sell the bond forced PRASA to halt construction on at least 55 projects that had been under construction, to delay the start on at least 86 projects in its capital improvement program, and left the authority in arrears on at least $140 million it owes to suppliers and contractors.

On June 1 PRASA Chief Financial Officer Efraín Acosta told the Bond Buyer that all the money due on July 1 for the authority's bonds had been given to the trustee.

An even bigger Puerto Rico public corporation, the Puerto Rico Electric Power Authority, plans to use an issuing authority to sell its debt.

On Sunday PRASA president Alberto Lázaro Castro presented his proposed budget for fiscal year 2016-2017, which starts July 1. In testimony to the Puerto Rico House Finance and Budget Committee, he called for a budget $44 million less than the current fiscal year budget, according to a PRASA spokeswoman.

The budget anticipates cutting the authority's debt service in the coming fiscal year by $32 million compared to the current fiscal year. It also anticipates cutting operating costs by $12 million primarily due to a reduction in electricity costs.

For comparison, PRASA's budgeted revenues for the current fiscal year were $1.131 billion.

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