The Puerto Rico Aqueduct and Sewer Authority plans in March to sell a bond to repay $200 million due at the end of that month and meet up to 18 months of capital expenses.
PRASA chief financial officer Efaín Acosta told The Bond Buyer on Friday the bond could be sold as early as March, though the sale could be delayed to April or May.
PRASA has $200 million in bond anticipation notes due to two Puerto Rico banks on March 31, Acosta said. Banco Popular and Oriental Bank are each owed $100 million. The banks have orally told PRASA that they will give it an extension for a few months if needed, he said.
The bond would be "much bigger" than $200 million, Acosta said. It would not only take out the BANs but also generate the money for the next 12 to 18 months of capital spending needs.
Acosta said work on the bond is already advanced, with a first draft of the preliminary official statement already complete. Bank of America Merrill Lynch will be the senior manager, he said, adding that there will be many other co-managers.
PRASA's senior bond rating is B-plus from Fitch Ratings, Caa1 by Moody's Investors Service, and B from Standard & Poor's, which lowered the rating from BB-minus on Friday.
The Puerto Rico Aqueduct and Sewer Authority raised its water rates by 60% in the second half of 2013 and its net revenues have been coming in better than budget. In the first half of the current fiscal year, total net revenues were $228.9 million rather than the $221.5 million that it had budgeted. Debt service coverages of its bonds have also been better than budgeted.
The plan to sell the bond comes as S&P has downgraded a wide range of Puerto Rico public sector credits, including PRASA, to B on Feb. 12 and 13. It also come as traders in Puerto Rico's GO debt on the secondary market have in recent days demanded yields above 10%.
The yields jumped after a federal court based in Puerto Rico vacated the commonwealth's Public Corporation Debt Enforcement and Recovery Act, which had been adopted in June 2014. The commonwealth had adopted the bankruptcy process to protect the commonwealth from the potential impact of any financial shortfalls at the public corporations.
Responding to PRASA's proposed bond sale, AllianceBernstein senior vice president Joseph Rosenblum and NewOak managing partner Triet Nguyen had similar takes. "Good luck to them, I guess," Nguyen said. Right now for Puerto Rico, "selling any of its debt will be a challenge," Rosenblum said.
Nguyen said there will be a problem in that both PRASA and a planned bond of as much as $2.95 billion from the Puerto Rico Infrastructure Finance Authority will be in the market at about the same time. Rosenblum said that the commonwealth's House of Representatives recently approved a $225 million bond for infrastructure needs that may also compete for investors' attention.
Bel Air Investment Advisors director of municipal research Michael Ginastro pointed to the rate increase, saying PRASA is in the strongest financial position of Puerto Rico's three major public corporations.
