Puerto Rico Halts Toll-Road Revenue Transfer to Save Cash

  • Governor will suspend transfer of toll revenue to bondholders
  • Highways bonds trade at cents on the dollar as default looms

Puerto Rico Governor Alejandro Garcia Padilla declared a state of emergency for the island’s Highways and Transportation Authority, suspending the transfer of toll-road revenue to bondholders and imposing a stay on legal claims.

While the order doesn’t establish a moratorium on bond payments, it halts a revenue stream to investors that wasn’t subject to the “clawback” initiated last year on fuel taxes to pay holders of commonwealth guaranteed obligations. Standard & Poor’s said in a report last month Puerto Rico will make its July 1 debt service payments of $220.7 million on highway securities by tapping reserve funds. It might not have enough stored away to pay in January, the ratings company said at the time.

The highways agency joins the island’s Government Development Bank in a state of emergency as commonwealth officials seek to preserve cash. The authority needs $25 million to continue operations on a monthly basis and $150 million to pay suppliers, according to a statement released Wednesday.

The move comes as a bill to assist Puerto Rico in restructuring its $70 billion of debt stalls in Washington, leading the commonwealth to take alternative measures. Ambac Financial Group Inc., which insures highways debt, sued the agency earlier this month over a concession agreement that could divert and extract $115 million from the authority.

QuickTake explainer: Puerto Rico’s slide

S&P said last month that toll revenue pledged to investors could cover about 21 percent of what’s owed on senior- and junior-lien highway bonds. The suspension of the funds won’t affect those clawed back under the governor’s executive order.

Puerto Rico has $5.4 billion in highway bonds. Those without insurance trade at lower prices than most other commonwealth securities. Uninsured debt maturing July 2033 last traded on May 12 at an average 16.8 cents on the dollar, data compiled by Bloomberg show.

“If there’s no replenishment into the reserves, it’s just a matter of time when the bonds will default,” David Hitchcock, an analyst covering Puerto Rico at S&P, said in a telephone interview.

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