The Puerto Rico Electric Power Authority today will issue nearly $325 million of tax-exempt new-money revenue bonds to pay down outstanding lines of credit with local banks in Puerto Rico.
A syndicate of banks extended loans to the authority for the purchase of fuel. Banco Popular is the major provider of the loans, according to Fernando Batlle, executive vice president of financing and treasury at the Government Development Bank for Puerto Rico.
The GDB is the commonwealth’s financing agent.
JPMorgan will begin retail pricing today on the Series 2010CCC bonds, followed by institutional pricing tomorrow. Nixon Peabody LLP is bond counsel.
Fitch Ratings and Standard & Poor’s rate the credit BBB-plus, while Moody’s Investors Service assigns its A3 rating to PREPA.
The authority, the island’s sole energy provider, has more than $6 billion of outstanding revenue debt.
The fixed-rate transaction will offer serial and term bonds, with maturities ranging from 2021 to 2028.
While energy sales and revenue collections dropped in fiscal 2008 and fiscal 2009, July through March revenue is up $92.6 million, a 21% boost, compared to the same period last year due to a 3% increase in energy sales and operating reductions, according to the preliminary official statement.
PREPA has also implemented layoffs and spending cuts to help balance operating budgets.
“I think it’s a really great story, in my opinion,” Batlle said. “Not just because it has performed extremely well, but management has done what they said they were going to do and the financial plan has worked beautifully.”
According to Fitch, PREPA will need to continue with cost reductions and decrease its dependence on oil to keep its BBB-plus rating.
Petroleum currently accounts for 69% of its energy production and officials aim to cut that to 48% by 2015.
The oil-reduction plan includes updating oil-fired facilities into natural-gas plants, potentially adding new coal-burning facilities, and possibly entering into purchase agreements with developers of renewable energy projects, according to the POS.
“In order to maintain the current rating level, PREPA must show continued results from its stabilization plan efforts, particularly system efficiencies and additional fuel diversity that result in long-term cost reductions, or approve sufficient base rate increases that result in solid operating margins and financial metrics that are in line with other similarly rated systems,” Fitch analysts said in a report.
“While PREPA’s board has the ability to raise base rates, there is concern over their willingness to do so in this economic environment.”