The Puerto Rico Public Buildings Authority’s high level of indebtedness — estimated at $4.2 billion — and whether it has repayment capacity, could make it an “easy target” for credit ratings agencies, local analyst firm REOF Capital concluded in a recently released report.
In the research, the firm explains that the agency’s level of indebtedness jumped significantly over a decade, spanning from the 1990’s to early 2000s, when the PBA carried an expansive agenda of government construction programs that added more than two-thirds of its current fiscal load.
“The [PBA] has a very high level of indebtedness that is a big drag on its operations. During 2012, operating revenues were $235 million while interest due was $207 million, which left about $18 million in operating revenues for $198 million in expenses [debt service ratio of 88 percent],” the firm explains.
To mitigate some of its debt, the agency — created to design and construct office buildings, courts, warehouses, shops, schools, health facilities and other facilities to lease them to commonwealth entities — recently completed a $589 million bond issue to manage and finance previous debt, as well as advances from the Government Development Bank for certain construction projects.
Several factors have affected the PBA’s fiscal picture, according to the report. Delays or nonpayment of rent, coupled with a slowdown in construction, have been enough to cripple the agency’s revenue-generating capacity.
“Before 2009 the [PBA] was not necessarily profitable, but was having reasonably ‘manageable’ deficits; in 2009, its net operating deficit was $577,388. This started to change in 2010 amid the Commonwealth’s economic crisis, the government passed a reduction in rental fees to agencies with past due rent,” the report noted. “The effect was quickly seen after the deficit ballooned from $15 million in 2010 to an average $139 million in 2011 and 2012, thanks to a 36 percent reduction in rental revenues.”
“With no new revenue coming from new construction, existing revenue needs to be taken care of as the average age of buildings will keep increasing. This is already being seen, as it is estimated that 607 properties still being paid by the [PBA], including some schools, are currently not in use,” the report further noted.
The PBA’s fiscal situation is also compounded by the fact that the government is its only client, so General Fund problems affect it directly. Furthermore, the Commonwealth, which is currently under deep scrutiny by credit ratings agencies, backs its debt.
“The Authority’s guarantee by the general government is the saving grace of its outstanding debt, yet the current General Fund liquidity concerns cast serious doubts on the [PBA’s] repayment capacity,” REOF concluded.