PRASA debt talks avoid haircut on senior revenue bonds

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The Puerto Rico Aqueduct and Sewer Authority is still seeking a restructuring of its senior revenue bonds that wouldn't reduce principal repaid to bondholders.

In talks over the past four months, PRASA and the bondholders have instead discussed postponing interest payments, extending maturities, and lowering interest rates, according to a disclosure posted Monday on the Municipal Securities Rulemaking Board's EMMA website.

“The impact of Hurricanes Irma and Maria is still being assessed,” the authority said in the statement on EMMA. “All parties have expressed a willingness and desire to resume discussions at the earliest appropriate time.”

The discussions continue outside the court supervised restructuring affecting $13.3 billion of Puerto Rico general obligations and $17.6 billion of COFINA sales tax revenue bonds, among other bonds. PRASA's revenue bonds traded recently at about 70 cents on the dollar, compared with 35 cents for GOs and 43 cents for COFINA, according to a report Thursday by Janney Investment Strategy Group.

As of June 30 PRASA had $5 billion in total debt. Of this, $3.3 billion was for senior revenue bonds and $285 million was for refunding bonds. PRASA owed $974 million to the U.S. Department of Agriculture and U.S. Environmental Protection Agency. The authority owed a remaining $477 million to either the Government Development Bank for Puerto Rico or for bonds issued through the Puerto Rico Public Finance Corp.

According to documents posted to EMMA on June 19, PRASA offered an initial restructuring where the revenue bonds would be converted into convertible capital appreciation bond. These would be converted into cash pay bonds after two years. The maturities would be extended so that the latest maturity would be in 2057 rather than 2047.

The 2008 refunding bond debt service reserve fund would be released.

After two years of deferred accretion at 5%, the bonds would pay a 5% interest starting in fiscal year 2020.

The call terms weren’t specified.

In this proposal the USDA Rural Development bonds and the EPA State Revolving Fund loans would be treated more harshly but still not have their principal cut. They would be converted into junior revenue bonds with very low interest rates and longer maturities.

On Aug. 18 a group of PRASA bondholders made an alternate offer that included reduced but not zero interest payments in the next two fiscal years, 5.5% interest rates from fiscal 2019 to fiscal 2027, and a final maturity of existing debt in 2047.

The bonds wouldn’t be callable for the first 10 years. They would be callable at 102 cents on the dollar in the following year and 101 cents on the year after that. Then they would be callable at par.

In September the authority made a new offer with some of the revenue bonds to be converted to current interest bonds and others into convertible capital appreciation bonds. Only for the latter bonds' debt service would be deferred for two years.

The 2008 Series CIBs would have 5.1% interest rates and the 2012 Series CIBS would carry 5% interest rates. The 2008 CCABs would have 5.35% and the 2012 CCABs would have 5.25% interest rates. Final maturities for both bonds would be in 2057.

In this proposal there would be no amortization in years 1 through 7. The bonds wouldn’t be callable for the first 10 years but they would be callable at par thereafter.

In the June proposal, the authority said the PFC Superaqueduct debt was to be paid through Puerto Rico government appropriations, if these appropriations were made. It also zeroed out making any payments for the Public Finance Corp. bonds. In its fiscal plan, the authority stated that the PFC bonds are not the authority’s “general obligation.”

The August and September proposals provided little or no discussion of what to do with the authority’s non-senior revenue bond debt.

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PROMESA Utilities Puerto Rico Aqueduct & Sewer Authority Puerto Rico