Puerto Rico lawmakers mull bill to prevent water utility default

Bloomberg

Puerto Rico lawmakers may vote as soon as Monday on a bill intended to help the island’s main water utility avoid a July 1 bond default by selling new debt with stronger repayment pledges.
A conference committee approved the measure, said Rep. Rafael ‘Tatito’ Hernandez, sponsor of the legislation and chair of the House Treasury Committee. It would create a new public corporation to sell bonds for the Puerto Rico Aqueduct and Sewer Authority, known as Prasa. The debt, called securitization bonds, would be repaid from up to 20 percent of Prasa revenue that would be directed to the new agency, giving some measure of security to bondholders by keeping it out of Prasa’s reach. The bill doesn’t boost Prasa’s fees, Hernandez said.
“They can fix their problems without increasing their water rates,” Hernandez said. “We are showing we can do things.”
Betsy Nazario, a spokeswoman in San Juan at the Government Development Bank, didn’t immediately comment on the proposed bill.
Prasa in March warned investors that without a proposed borrowing in place, the agency may redirect cash to pay contractors instead of its debt. The utility owes bondholders $135 million of principal and interest on July 1. The bill limits the new borrowing to as much as $900 million for capital projects, although the agency could sell more debt to repay suppliers, contractors and repay bank loans, Hernandez said.
If the legislature approves the Prasa bill, the House may vote as soon as Thursday on a Senate measure that would exempt from the island’s debt-moratorium law any bond-restructuring deals that utilities enter into with their creditors, Hernandez said.
The Puerto Rico Electric Power Authority, called Prepa, is looking to restructure its $9 billion of debt through a voluntary exchange where bondholders take a 15 percent loss on their holdings. Having that deal excluded from the commonwealth’s moratorium law — which allows the governor to suspend principal and interest payments on all island debt — would help execute that restructuring plan.