Puerto Rico advances law
to help water utility issue debt
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[March 11, 2016]
SAN JUAN (Reuters) - 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.
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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.
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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)
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