Puerto Rico Water Agency Pays Premium to Refinance Bank Loan

Updated on
  • Prasa wants to sell $750 million in bonds in a ``few weeks''
  • Bank of America assuming most of loan from Banco Popular

Puerto Rico’s main water utility paid a significant premium while selling $75 million of short-term notes that extend a bank loan through November and said it remains optimistic that the agency can issue $750 million in bonds in the next few weeks.

The Puerto Rico Aqueduct and Sewer Authority revenue note sale transfers most of a $90 million loan with Banco Popular to Bank of America Merrill Lynch, the lead underwriter of the deal, according to Norma Munoz, a spokeswoman in San Juan for the utility. The notes, which mature Nov. 30, were privately placed with an 8.75 percent coupon priced at par. Top-rated three-month tax-exempt securities yield about 0.09 percent, according to data compiled by Bloomberg.

The utility, called Prasa, plans to sell the revenue bonds after delaying the deal last month. The agency is reviewing and updating its bond documents and “should be back in the market in the next few weeks,” Munoz said. Bank of America is also the underwriter for the proposed bond offering.

Prasa failed to sell the bonds in August after investors backed away. The agency decided to wait until after the island’s main electricity provider, called Prepa, reached a tentative agreement Sept. 1 with some of its bondholders and the commonwealth’s Working Group released a fiscal adjustment plan on Sept. 9.

The utility reached a settlement agreement with the U.S. Department of Justice and the U.S. Environmental Protection Agency under which system improvements will be made, the DOJ said in a statement Tuesday. The DOJ waived civil penalties associated with alleged violations.

“The U.S. has taken Puerto Rico’s financial hardship into account by prioritizing the most critical projects first, and allowing a phased in approach in other areas,” Assistant Attorney General John C. Cruden, said in the statement. “But let me be clear that these requirements are necessary for the long-term health and safety of San Juan area residents.”

Puerto Rico and its agencies owe $72 billion. Governor Alejandro Garcia Padilla is seeking to reduce that amount and delay debt-service payments as the island’s economy has struggled to grow since 2006. Officials have said Prasa’s $4 billion of debt won’t need to be restructured if the agency can sell the $750 million of bonds.

Prasa bonds maturing July 2042 traded Monday at an average price of 66.9 cents on the dollar, for an average yield of 8.4 percent, according to data compiled by Bloomberg.