SAN JUAN, Puerto Rico, July 24 Pending
legislation in Puerto Rico could protect the U.S. Commonwealth
from getting burned in a potential restructuring of the Puerto
Rico Highways & Transportation Authority (HTA), which owes the
Government Development Bank over $2 billion.
Under the bill, quietly filed in late June near the end of
the last legislative session with no public hearings, the
island's infrastructure authority PRIFA would use tax revenue
that goes to HTA to issue bonds and use the proceeds to pay off
its debts with the GDB.
The bill has not yet been approved but the House and Senate
finance committees issued reports calling for its passage and
lawmakers are expected to approve the measure when they return
to session next month.
"It is necessary to identify an entity that has better
access to the market to assume the HTA's debt and in this way
partially repay the debt to the GDB," GDB interim President Jose
Pagan said in a memo that was filed with the bill.
It is unclear who would buy the debt. Puerto Rico has
essentially lost access to capital markets since it passed a law
in June that allows public corporations, such as HTA, to
restructure their loans. The law led to a raft of downgrades
from ratings agencies and a selloff in Puerto Rico's bonds.
However, a group of hedge funds who support the
restructuring law, among them Fir Tree Partners and Monarch
Alternative Capital, have said they would willing to provide
Puerto Rico with financing. The group, known as the "Ad Hoc
Group" did not immediately comment.
HTA has nearly $5 billion outstanding debt with bondholders
beyond the $2 billion with the GDB.
Robert Donahue, managing director at Municipal Market
Advisers, sees the move as an attempt to isolate "GDB's exposure
to the Highway and Transportation Authority."
"The bill does not explicitly state the HTA will need to be
restructured, but it does appear that it would isolate the GDB
from the impact of HTA debt write down if the agency files for
protection under the restructuring act," Donahue said. "It is
unclear whether this legally is possible without violating
bondholder covenants, and/or could be voided as an unlawful
Puerto Rico officials insist that the law passed in June,
known as the Puerto Rico Debt Enforcement and Recovery Act, is
aimed at the electric power authority PREPA, which has over $9
billion of outstanding debt.
Still, news of the bill surprised investors just weeks after
the Recovery Act was quickly passed. "There is a growing
sentiment that Puerto Rico officials haven't acted in good faith
and consistent with previous statements," said Donahue.
During an investor webcast earlier this month, a potential
PRIFA bond deal was mentioned as a possible source of future
financing. GDB Board Chairman David Chafey said Governor
Alejandro Padilla has ordered the GDB and HTA to resolve its
financial situation without resorting to the Recovery Act.
A spokesperson for the GDB did not immediately return
requests for comment.
(Reporting by Reuters in San Juan; Editing by Chizu Nomiyama)