(Adds government comment)
Aug 11 (Reuters) - Puerto Rico’s water authority has filed to sell $750 million in revenue bonds to fund various system improvements and refinance loans, according to an offering document, but investors said the commonwealth will have to overcome several obstacles to raise the money after a default earlier this month.
The preliminary offering statement from the Puerto Rico Aqueduct and Sewer Authority, or PRASA, dated Aug. 10, came just days after Puerto Rico failed to make a full payment due on bonds sold by its Public Finance Corp. The partial payment is considered a default by its creditors and ratings agencies, the first ever by the U.S. territory.
“It hurt them, and they’re going to have to prove they have the willingness to pay this,” said Michael Comes, portfolio manager and vice president of research at Cumberland Advisors in Florida which owns a variety of insured Puerto Rico bonds.
Comes said Puerto Rico would need to show it can dedicate a stream of revenue to make payments on the bonds and “lock box” those revenues in order to get the offering done.
PRASA is trying to raise the funds in part to try to comply with a consent decree with the U.S. Environmental Protection Agency to upgrade its aging system. It also plans to use the money to refinance loans provided by local banks and the island’s Government Development Bank.
According to a statement from Government Development Bank President Melba Acosta, the GDB does not expect PRASA will need to restructure its debt, assuming it revises its rates as forecasted and providing it is able to access the market on reasonable terms and for sufficient amounts.
“The fact that PRASA is going to market with this transaction at the same time the Commonwealth is developing a comprehensive fiscal adjustment plan reflects the individual financial circumstances of the various debt issuers across the Commonwealth,” Acosta said in the statement.
Puerto Rico Governor Alejandro Garcia Padilla shocked holders of the island’s $72 billion debt in June, saying he wants to restructure debt and develop a fiscal plan by the end of August.
PRASA began working with the GDB last year to sell at least $770 million in bonds.
“People are going to look at these credits independently to a certain degree but obviously having one default doesn’t help,” said Lyle Fitterer, head of tax-exempt fixed income at Wells Capital Management. (Reporting by Dan Burns and Jessica DiNapoli; Editing by Bernard Orr and Meredith Mazzilli)