MBIA Puerto Rico Highway Agency Risk Falls as Bond Payments Loom

  • Ambac last week also disclosed the agency repurchased its debt
  • General-obligation bonds can claw back gas and petroleum taxes

MBIA Inc.’s exposure to the Puerto Rico Highways & Transportation Authority was cut by $155 million because the agency bought back debt, the second bond insurer in a week to disclose reduced risk to the island before key payments are due to investors over the next two months.

The highway agency purchased debt insured by MBIA’s National Public Finance Guarantee Corp. and canceled it on Nov. 13, according to a report on the company’s website that was updated Monday. The authority did the same thing with $228.5 million of bonds backed by Ambac Assurance Corp., that company confirmed last week.

That eases some of the losses the insurers face from a building fiscal crisis that’s left the commonwealth struggling to pay its $70 billion of debt. Puerto Rico, which is rapidly draining its cash, has $467 million of principal and interest due Dec. 1 and $958 million owed on debt including general obligations on Jan. 1.

Puerto Rico can divert petroleum and gasoline taxes that fund its highway-agency debt to pay its general obligations, which are constitutionally protected.

Puerto Rico said in a May 7 quarterly report that it could resort to emergency measures to cover its debt bills, including taking “taxes or other revenues previously assigned by law to certain public corporations to secure their indebtedness.” Taxes on gasoline and petroleum products that Puerto Rico allocates to its highways agency for debt service are considered “available commonwealth resources” that must be used first to pay general obligations, according to bond documents.

That has made the chief executive officer of rival insurer Assured Guaranty Ltd. focused on the transportation authority, according to Mark Palmer at BTIG LLC, a brokerage firm.

At a bond-insurance panel that BTIG hosted Monday, Assured CEO Dominic Frederico indicated “the potential for the government to take irrational actions with regard to the debt made it a priority,” Palmer wrote Tuesday in a report. “While the Puerto Rico government would not be able to claw back revenue from tolls, its ability to do so from other revenues had made management concerned.”

Some uninsured Puerto Rico highway bonds maturing in 2028 traded Monday at an average of 19 cents on the dollar to yield 30 percent. That’s almost three times the yield on Puerto Rico’s most frequently traded general obligations.

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