In a major development amidst Puerto Rico’s recovery from its tumultuous financial past, the public-private partnership that recently acquired the territory’s toll roads is poised to initiate a new round of municipal bond sales. Spearheaded by the Wisconsin-based Public Finance Authority, this initiative aims to raise $286.2 million in senior revenue bonds to fund continued enhancements and operations of essential transport routes on the island. Barclays is playing a critical role as the underwriter for this significant project, marking an intriguing step forward for Puerto Rican infrastructure.
The backdrop to this venture can be traced back to the island’s historic bankruptcy, where a substantial debt burden loomed over its financial prospects. The Puerto Rico Highways and Transportation Authority (HTA) faced challenges due to its outstanding liabilities, totaling around $4.3 billion before the bankruptcy. However, a long-term solution emerged when Puerto Rico Tollroads, LLC— an entity of Abertis Infraestructuras S.A.—leased four critical highways from HTA for an impressive upfront sum of $2.85 billion. This move not only settled $1.24 billion of preceding toll revenue bonds but also facilitated a forward-looking structure for the financial dealings surrounding these toll roads.
Understanding the Bond Structure and Rating
These impending bonds will employ a familiar framework seen in transportation-related public-private partnerships (P3s) across the United States. The structure leverages private activity bonds allocated through the U.S. Department of Transportation, which generally secures triple-B ratings. Notably, these upcoming bonds are distinctive in that they are the first to be issued for infrastructure that was previously funded by defaulted government bonds. Fitch Ratings has assigned a stable outlook with a rating of BBB to these bonds, emphasizing the essential role the toll road network plays as a key transportation artery for an increasing commuter base within the economically volatile Commonwealth of Puerto Rico.
Fitch’s assessment underscores the project’s lengthened concession life and the adequate toll adjustment mechanisms that exist. Per their analysis, this framework effectively shields the Puerto Rico Tollroads (PRTR) from political fluctuations, granting the project the capacity to adjust rates in accordance with projected inflation trends. The robust financial projections suggest a minimum project life coverage ratio of 2.1 times, with leverage metrics remaining stable in the range of 7 to 8 times through 2030. While the rating reflects strong underlying fundamentals, the potential for future re-gearing poses an intriguing risk – this refers to the possible increase in leverage that could negatively impact the project’s financial standing.
Capital Improvement Commitments and Future Outlook
The projected proceeds from the bond issuance are earmarked primarily for capital improvements along the four designated toll roads: Puerto Rico-52/PR-18, PR-66, PR-53, and PR-20. As a part of its concession agreement, Puerto Rico Tollroads has explicitly committed to advancing these necessary enhancements, emphasizing a focus on long-term sustainability and infrastructural integrity. It’s worthwhile to note that the company also manages a wider network, operating major highways like PR-22 and PR-55 under its operating name, Metropistas.
Additionally, the Puerto Rico Tollroads maintains a significant $1.43 billion senior secured term loan, which also holds a rating of BBB from Fitch. The financing structure reflects a carefully planned strategy to navigate both opportunities and inherent risks, ensuring ongoing improvements while maintaining fiscal responsibility.
The future of Puerto Rico’s toll roads under this public-private partnership exemplifies a strategic path towards revitalizing critical infrastructure. By focusing on capital enhancements and leveraging diverse financing mechanisms, Puerto Rico is not only aiming to recover but also to build a more resilient transportation network, ultimately benefiting the economic stability of the region. The forthcoming bond sale represents a pivotal moment in Puerto Rico’s journey toward financial recovery and infrastructure improvement, testifying to the ongoing transformation of its fiscal landscape.