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PRASA completes restructuring of $1B in debt with 2 federal agencies

The government of Puerto Rico has reached an agreement with a pair of federal agencies to restructure some $1 billion in Puerto Rico Aqueduct and Sewer Authority debt.

According to a press release PRASA and the Fiscal Agency and Financial Advisory Authority, or AAFAF, reached an understanding with the Environmental Protection Agency’s Clean Water and Drinking Water State Revolving Fund programs and the U.S. Department of Agriculture’s Rural Development, Rural Utilities Service program.  

The agreements were approved by the Financial Oversight and Management Board for Puerto Rico and “mark an important milestone for PRASA and the government of Puerto Rico ending the need for continued forbearance agreements related to the federal debt and removing uncertainties about PRASA’s future,” the government said in a statement.

“The Agreements result in substantial benefits for PRASA, the government and the people of Puerto Rico, including (i) debt service relief to PRASA of approximately $380 million over the next ten years, (ii) renewed access to potential sources of funds under federal programs for infrastructure projects, (iii) elimination of approximately $1 billion in Commonwealth guarantees over the Federal Debt, and (iv) adequate protection of the interests of the Federal Parties,” said Elí Díaz-Atienza, executive president of PRASA. 

The Agreements modify the economic terms of approximately $570 million in outstanding SRF loans and $403 million in RD/RUS bonds, eliminate the government’s guaranty of such debt, and designate the new federal debt as parity senior debt with PRASA’s other senior debt pursuant to the terms of PRASA’s existing Master Agreement of Trust.

The amended loan terms would lower PRASA’s debt service on the U.S. Government program loans by about $380 million over the next 10 years.

“The agreements with the U.S. Government are significant achievements for PRASA,” said the Oversight Board’s Executive Director Natalie Jaresko. “The Oversight Board appreciates the U.S. government’s willingness to agree to these terms, which will support PRASA’s ongoing efforts to safeguard Puerto Rico’s public health and water infrastructure.”

The agreements were executed July 26, 2019 and publicly disclosed through the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access, on Aug. 9, 2019, in accordance with the Securities and Exchange Commission timelines.

“Today’s achievement is the final step in what has been a long process that was only possible thanks to ongoing support from the Office of the Governor, Congresswoman Jenniffer González, the hard work of PRASA’s management team, and the commitment and support of AAFAF, the Puerto Rico Infrastructure Financing Authority, the Puerto Rico Department of Natural and Environmental Resources, and the Puerto Rico Department of Health, Díaz-Atienza said.  

“For nearly three years, PRASA and the federal parties have been in constant communication focused on achieving a consensual, sustainable solution that would reset our mutual relationship, while setting PRASA on a path to long term sustainability,” he added.

Meanwhile, AAFAF Executive Director, Omar Marrero confirmed that “the agreements set PRASA on a clear path to credit rehabilitation that will allow it to regain municipal market access in the near term for future capital investments.” 

Furthermore, “the agreements ensure the investments necessary to improve the supply of affordable and clean water and protect the Puerto Rico environment through the safe treatment of wastewater,” Jaresko said.

“The agreements are also a meaningful milestone on Puerto Rico’s path to exit bankruptcy,” she added.

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This story was written by our staff based on a press release.

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