Puerto Rico advances law to help water utility issue debt
SAN JUAN Puerto Rico's House of Representatives on Thursday approved a bill aimed at making it easier for the island's cash-strapped water authority, known as PRASA, to issue new bonds and avoid a rate hike. In a 35-10 vote with bipartisan support, the house green-lighted the bill after some 400 amendments, sending it to the U.S. territory's Senate. Puerto Rico is struggling to figure out how to pay its $70 billion debt load amid high poverty rates and a stagnant economy. The island is locked in a dispute with its creditors over resolving the crisis while the U.S. Congress works on a potential legislative fix before month's end. An attempt by PRASA to issue $750 million in debt fell apart last August. The latest bill would allow the water utility to issue debt backed by a dedicated revenue stream, ostensibly making it more attractive to investors. An amendment to the bill would also guarantee no water rate hikes until summer 2018. PRASA already owes bondholders about $4.5 billion and has suspended ongoing projects due to difficulties accessing the bond market. Last week, it announced that without new borrowings, it may withhold debt payments in favor of paying vendors.
Moody's Investors Service on Thursday called that statement credit-negative. "The declaration amounts to a reversal for PRASA, which imposed dramatic rate increases in 2013 and, in recent months, emphasized its ability to generate sufficient revenues as it unsuccessfully tried to sell additional debt to finance its capital improvement program," Moody's said. In February, lawmakers passed a similar securitization structure for Puerto Rican power utility PREPA, which owes $8.3 billion in debt. However, in PREPA’s case, the bill was coupled with a consensual restructuring agreed to by most creditors after 18 months of contentious talks.
PRASA has not yet gone through such talks, causing some concern among government officials. "Many in Puerto Rico feel the proposed legislation [for PRASA] has not been carefully crafted with stakeholder buy-in," analysts at Height Securities said in a note on Thursday.
The PRASA bill was introduced by Representative Rafael "Tatito" Hernández Montañez. The U.S. Congress is expected to propose a federal control board to oversee Puerto Rico's finances, but it is unclear if the island will be allowed access to bankruptcy protection. (Reporting by a contributor in San Juan; Writing by Nick Brown; Editing by Daniel Bases and Leslie Adler)