Puerto Rico tollways privatized after bankruptcy will sell tax-exempt bonds

The public private partnership that took over Puerto Rico toll roads out of the territory’s bankruptcy is gearing up to sell municipal debt for the enterprise.

The Wisconsin-based Public Finance Authority will be pricing the $286.2 million in senior revenue bonds on behalf of Puerto Rico Tollroads, LLC. Barclays is an underwriter.

Fitch Ratings rates the bonds BBB with a stable outlook.

Puerto Rico Tollroads, LLC, a subsidiary of Abertis Infraestucturas S.A., leased four highways from the Puerto Rico Highways and Transportation Authority in December.

The concessionaire paid $2.85 billion upfront; that money paid off $1.24 billion of toll revenue bonds that had been issued under the bankruptcy plan of adjustment that wrote down a substantial share of $4.3 billion of HTA bonds outstanding before Puerto Rico’s bankruptcy.

What’s left is a deal employing a common structure in U.S. transportation P3s, in which the concessionaire finances part of the project with private activity bonds allocated through the U.S. Department of Transportation and sold through a conduit, usually with triple-B ratings.

Tolls on the four highways covered by the new deal — Puerto Rico-52/PR-18, PR-66, PR-53, and PR-20 — had previously backed the HTA’s municipal revenue bonds.

Since the federal government appointed the Oversight Board and approved a bankruptcy process for Puerto Rico bonds in the Puerto Rico Oversight, Management, and Economic Stability Act in 2016, other Puerto Rico private sector entities have sold private activity bonds. However, these are the first bonds that will be sold for infrastructure originally financed with government bonds that defaulted.

“Public Finance Authority was the company identified by the government of Puerto Rico in the process of Public-Private Partnerships, to serve as a vehicle to issue private activity bonds, as approved by the federal government,” said Metropistas Finance Director Estaban Vélez. Metropistas is business operating name of Puerto Rico Tollroads. “We will soon have more information to share.”

“The rating reflects an extensive toll road network that serves as an essential transportation link for a growing commuter traffic base in the Commonwealth of Puerto Rico, a region that experienced significant economic volatility and weak demographic trends,” Fitch said. The rating also stems from the project’s long concession life and adequate toll adjustment mechanism.

“The framework insulates PRTR from political risks and gives the project the rate-setting capacity to raise rates linked to projected inflation over time,” Fitch said.

The bonds’ projected financial metrics are strong for the rating level, Fitch said, with a minimum project life coverage ratio of 2.1 X and leverage metrics, calculated as net debt-to-cash flow available for debt service, remaining in the 7X to 8X range through 2030. “However, the possibility of future re-gearing, although not currently planned, together with refinancing risk related to the term loan’s concentrated bullet maturity in 2028, limit the rating.” Fitch said by “re-gearing” it meant the ability to increase leverage that could lead to a weakening of the financial profile.

The Puerto Rico Tollroads also has a $1.43 billion senior secured term loan, which Fitch also rates BBB.

The bond proceeds will primarily be used to improve the four toll roads. Puerto Rico Tollroads has committed to do capital improvements work as part of its concession agreement.

The Autopistas Metropolitanes de Puerto Rico operates PR-22 and PR-55 highways and also uses the name Metropistas. Abertis owns both Puerto Rico Tollroads and AMPR.

AMPR’s senior secured notes are rated BBB by S&P Global Ratings and BBB-minus by Kroll Bond Rating Agency. In February Moody’s Ratings released a report rating Metropistas senior secured notes Baa3 and only mentioning AMPR’s highways PR-22 and PR-5 as the roads it operates.

Abertis and Barclays didn’t respond to requests for a comment.