Puerto Rico Sale Pushed to Thursday as Restructuring Looms

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Puerto Rico’s first bond issue since the commonwealth defaulted on a debt payment has been pushed out to Thursday at the earliest as investors evaluate the risk of the island’s restructuring plans.

“It’s just to give investors time to do their work on the credit,” said Lyle Fitterer, who helps oversee $38 billion of municipal securities, including Puerto Rico debt, at Wells Capital Management in Menomonee Falls, Wisconsin. Fitterer had been in contact with underwriters of the securities.

The $750 million issue by the Puerto Rico Aqueduct & Sewer Authority, known as Prasa, had been tentatively scheduled to be priced Tuesday, according to a presentation to investors last week.

Kristen Kaus, a New York-based spokeswoman for Bank of America Merrill Lynch, the lead underwriter of the sale, declined to comment. Norma Munoz, a spokeswoman for Prasa in San Juan, didn’t immediately respond to phone message and e-mail.

The Prasa borrowing is a test of junk-rated Puerto Rico’s ability to access the capital markets after a sister agency defaulted two weeks ago. The Public Finance Corp. on Aug. 3 paid only a portion of a $58 million principal and interest payment to investors. Governor Alejandro Garcia Padilla said in June the island plans to restructure a $72 billion debt burden that it can no longer afford.

Restructuring Impact

Prasa’s bonds may be sheltered from the restructuring proposal. Government Development Bank President Melba Acosta, the island’s top debt official, said the bank doesn’t foresee the water agency reorganizing its obligations.

Others say the debt may be affected. Standard & Poor’s, which rates the utility CCC-, its third-lowest junk grade, may downgrade the agency because “events could unfold within the next three months that could expose Prasa to greater restructuring efforts,” Theodore Chapman, an analyst for the company, wrote in a report Tuesday.

The water utility is offering 30-year bonds for a preliminary yield of 9.5 percent, according to four people familiar with the sale who asked for anonymity because the deal isn’t final. That’s about triple the 3.2 percent yield for benchmark securities. The bonds would carry an 8 percent coupon.

The offering is the first sale of long-term debt from the island since it issued $3.5 billion of general-obligation bonds in March 2014.

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