Puerto Rico's Senate passed a bill to help the Puerto Rico Aqueduct and Sewer Authority sell as much as $900 million in bonds.
The Senate voted 25-1 for
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 bonds will get an 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.
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%.
For it to become law, Puerto Rico Gov. Alejandro García Padilla would have to sign it. As of Tuesday afternoon a spokeswoman for the governor had not returned a call about when the governor would act on the bill. The marketability of the bonds may depend on action in U.S. Congress to set up a control board to oversee the restructuring of about $69 billion of Puerto Rico public debt.
On June 9 the U.S. House of Representatives passed the Puerto Rico Oversight, Management, and Economic Stability Act to create the control board for Puerto Rico's government. The board would be able to take steps to restore balanced budgets, put a freeze on debt litigation, and, if consensual debt negotiations didn't work out, file petitions in courts for debt restructurings.
Howard Cure, director of municipal research at Evercore Wealth Management, said if the PRASA and PROMESA bills are passed, investors would want to know if the anticipated PROMESA control board would recognize a senior or additional lien security on the new corporation's debt.
"I think most traditional investors would be dubious at this point of any security pledge given by the commonwealth without it being sanctioned by the board," he said. "I also don't know if the interest rates specified of 4% to 5.5% would entice any investors given the legal questions that are unresolved."
