NEW YORK — Puerto Rico’s main water utility plans to sell $750 million of revenue bonds, the first debt offering from the financially struggling Caribbean island since it defaulted on securities sold by one of its agencies last week.
The deal may price as soon as next week. It will follow Public Finance Corp.’s failure to make a full bond payment Aug. 3 and come just weeks before the commonwealth is set to propose a plan for restructuring its $72 billion debt. Melba Acosta, the island’s debt chief, doesn’t foresee the water agency reorganizing its obligations in such a move.
The utility’s sale will test Puerto Rico’s ability to access the capital markets. Governor Alejandro Garcia Padilla in June said the US possession can’t afford to repay what it owes as the population falls and the economy struggles to grow. Its bond prices have dropped amid speculation about the scale of the losses facing investors.
“This is going to be a bumpy ride for the commonwealth,” said Joseph Rosenblum, director of municipal credit in New York at AllianceBernstein Holding, which manages $32 billion of municipal bonds, including Puerto Rico securities. He said investors need to consider “what’s the spillover to the value of my bonds?”
AllianceBernstein will determine whether to buy once it sees the prices that are offered, Rosenblum said.
The Aqueduct and Sewer Authority, called Prasa, will use the proceeds to finance capital improvements to help the water utility comply with environmental regulations. Its debt is repaid with money from customers’ bills.
The yields on Prasa bonds are some of the lowest among the commonwealth’s different agencies, reflecting their relative safety amid the island’s escalating crisis. Bonds maturing July 2042 traded Tuesday at an average 68 cents on the dollar to yield 8.2 percent, less than Puerto Rico’s general obligations, data compiled by Bloomberg show.
The securities have risks and will be initially sold in denominations of $100,000, according to the bond documents. Prasa has been rationing water since May in parts of the island because of a drought, which increases expenses and lowers demand, according to the documents.
Puerto Rico public corporations could also win the power to file for bankruptcy protection, the bond documents warn. Island officials have been lobbying Congress to allow some agencies to do so.
By Michelle Kaske
Puerto Rico agency sets $750 million bond sale after default
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