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Privatization of Puerto Rico highways to pay off $1.6 billion of debt

Puerto Rico Gov. Pedro Pierluisi announced Tuesday the privatization of four Puerto Rico highways Tuesday, a deal that will lead to the paying off the $1.6 billion of Puerto Rico Highways and Transportation Authority debt remaining after a 2022 restructuring.

The U.S. District Court for Puerto Rico approved a HTA plan of adjustment in October, restructuring $4.3 billion in bonds into $1.24 billion in bonds, $389 million in cash, and contingent vehicle instruments. While these bonds had maturities out to 2061, the transaction announced Tuesday will pay off the bonds and $360 million the HTA owes to Puerto Rico’s central government once the deal goes into effect.

The CVIs, which are part of the Puerto Rico central government’s plan of adjustment, continue.

The entrance to a Puerto Rico toll road. A new deal will privatize operation of four remaining government-run toll highways in the territory.

Bloomberg News

The announced deal doesn’t need legislative approval and is expected to be executed Dec. 14.

The Puerto Rico Public Private Partnerships Authority picked a firm, Albertis Infraestructuras SA, that already operates two Puerto Rico highways and a bridge. Albertis will operate the additional four highways under the name Metropistas, which it uses to operate the existing Puerto Rico toll assets.

The HTA will supervise the new concession, according to the governor.

“My commitment and that of my administration to the reconstruction and modernization of our infrastructure are known to all,” Pierluisi said.  ”The renewal of our physical environment is going full steam ahead.”

“The P3A agreement is a big win for Puerto Rico,” Robert F. Mujica Jr., executive director of the Financial Oversight and Management Board, said in a news release announcing the Oversight Board’s approval of the deal.

“Puerto Rico’s toll roads attracted several highly qualified applicants in a public and transparent bidding process that provides Puerto Rico with substantial new funding. This money comes from Puerto Rico’s road system and should stay with Puerto Rico’s road system.”

Highways and Transportation Authority Executive Director Edwin González said after studying how to improve safety, service, and infrastructure quality, and to address the authority’s debt, the authority decided the best step was to have a concession with a private operator.

Albertis will pay a fee of $2.85 billion. After paying the debt, this will leave about $1.1 billion in funding for a trust to be used for proceeds for road maintenance and other long-term investments, the Oversight Board said.

The transaction will add 119 miles of Puerto Rico toll roads to the 54 miles and one toll bridge under Albertis’ management, the firm said.

Less than 20% of Puerto Rico’s highways are in good condition, compared to a median 84% in the United States, the Oversight Board said in its news release. The trust is aimed at rectifying this inequality. The concession agreement has goals for improvements within two years, seven years, and 12 years.

The agreement limits toll increases to a maximum annual percentage of the consumer price index plus 1.5%. Consistent with the approved fiscal plan, Puerto Rico’s central government is expected to transfer $3.2 billion to the HTA through 2051.

A municipal bond investor familiar with Puerto Rico said, “The upgrade of infrastructure and associated acceleration of economic development without attacking creditors is responsible governing, a recent anomaly on the island. It stands in stark contrast to the Puerto Rico Electric Power Authority, where the [Oversight Board] and island leadership seem intent on doing absolutely nothing to address the antiquated power system other than attacking creditors and impairing the island’s access to private capital.”

John Mudd, an attorney in Puerto Rico and frequent pundit on the territory’s finances, said it was a “good idea to minimize government involvement in highways to deter any future possibility of indebtedness to finance government operations.”

Puerto Rico Clearinghouse Principal Cate Long said Albertis got a “bargain.”

Albertis operates road transportation infrastructure in 15 countries. The new highways it will operate are PR-20, PR-52, PR-53, and PR-66.

If toll revenues exceed projected amounts, the concession allows revenue sharing from tolls on the four highways to the HTA.

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