Oct. 22 (Bloomberg) -- Puerto Rico, with a credit rating one step above high-risk junk, will repay bonds with some of the $6.2 billion it seeks from private investors in infrastructure partnerships, a commonwealth finance official said.

The partnership program will help the government reduce a $3.2 billion budget deficit and restore its creditworthiness, said Fernando Batlle, finance director of the Government Development Bank, the island’s fiscal agency.

Puerto Rico wants private investors to rehabilitate or build new water systems, electric plants, ports and roads. In return for upfront payments, the commonwealth would grant investors long-term leases to collect user fees.

“Some of the proceeds will be used to pay off debt or defease bond issues, whether it’s at the public-corporation level or the central government level,” Batlle said today at a conference of infrastructure investors in Fajardo, east of San Juan, the capital.

Puerto Rico’s public corporations, which include the Electric Power Authority, the Aqueduct and Sewer Authority, the Highway & Transportation Authority, the Ports Authority and the Public Building Authority, have about $21 billion of debt, the government said in September, when it proposed seeking private partnerships to improve the island’s infrastructure.

The plan was drawn up by the administration of Governor Luis Fortuno, a Republican who took office in January with promises to restore the island’s finances. His spending cuts so far have included the firing of 22,000 government workers.

‘Stabilization Plan’

Batlle said the government’s “fiscal stabilization plan” has helped preserve its credit rating, which Standard & Poor’s puts at BBB-, one level from so-called junk, a non-investment grade debt that some mutual funds are prohibited from holding.

“We are still investment grade, something that was in doubt at the beginning of the year,” Batlle said.

He said the government had identified and implemented 60 percent of the $2 billion of expense reductions and revenue raising it seeks. The remaining $800 million will be met with more cost cuts and temporary revenue-raising measures, he said.

The Public Buildings Authority sold about $150 million of revenue refunding bonds this month that will allow the commonwealth to reduce 2010 debt service costs by almost $60 million, Moody’s Investors Service said Oct. 15. Moody’s rated the bonds Baa3, the same as the island’s general-obligation debt and one level from non-investment grade.

Bonds to be repaid from partnership funds will be evaluated based on federal tax regulations, indenture provisions and input from credit-rating companies, Batlle said.

To contact the reporter on this story: Jerry Hart in Fajardo at jhart@bloomberg.net.

Last Updated: October 22, 2009 13:21 EDT