PRASA may refund $1.8 billion high-yield bonds

The Puerto Rico Aqueduct and Sewer Authority may refund more high-yield debt.

The authority is considering refunding its $1.8 billion of Series 2012A and Series 2012B bonds, according to a Wednesday evening posting on the Municipal Securities Rulemaking Board’s EMMA website.

This would follow its successful high-yield 2008A and B refunding on Dec. 9, when it sold $1.4 billion of refunding bonds at yields ranging from 2.50% in 2021 to 4.15% in 2047. The deal received $4.1 billion of orders.

“It makes sense for PRASA to attempt debt refinancing as quickly as possible to take advantage of current market conditions, which may not be fleeting but could still get a bit worse for speculative borrowers as the year wears on,” said Matt Fabian, partner at Municipal Market Analytics. “They also have an opportunity, with state and local governments of all kinds engaging in refinancings for near-term budget savings, the scoop-and-toss stigma is substantially weaker. At least during 2021.

“PRASA has a burden via its ownership by, and location in, Puerto Rico and the huge uncertainty all that brings over time,” he continued. “But weaker and less-understood borrowers access capital every month in our market.”

The EMMA posting said the offering would be a limited public offering, which may mean it will only be available to institutional investors, sold at sizes of $250,000 and larger, and sold on the condition that it only be resold to other institutional buyers.

Barclays Capital would be the senior manager and BofA Securities, Jefferies, and J.P. Morgan Securities would be the co-managers.

PRASA’s existing revenue bonds are rated Ca with a negative outlook by Moody’s Investors Service and CCC by Fitch Ratings. S&P Global Ratings withdrew its rating in August 2018, citing insufficient information from the authority.