PRASA sells $1.5 billion investment grade issue

The Puerto Rico Aqueduct and Sewer Authority (PRASA) sold $1.5 billion in bonds in the local and U.S. municipal market -- the first time in 20 years the utility has accessed the public markets, announced José Ortiz, PRASA Executive President, and Jorge Irizarry, President of the Government Development Bank for Puerto Rico. The financing represents an important development in the Commonwealth's program to invest in new facilities and modernize its water delivery and sewage systems...

• Marks water utility's first public offering in 20 years; Funds to be used for capital improvement program and financial restructuring

SAN JUAN, PR, March 6, 2008 -- The Puerto Rico Aqueduct and Sewer Authority (PRASA) successfully sold $1.5 billion in bonds in the local and U.S. municipal market -- the first time in 20 years the utility has accessed the public markets, it was announced by José Ortiz, PRASA Executive President, and Jorge Irizarry, President of the Government Development Bank (GDB) for Puerto Rico.

"We have been working towards this day with great determination," said Ortiz. "The broad acceptance of our issue underscores what PRASA has accomplished, and represents a vote of confidence from the investor community, particularly now that the market is going through tough times. It validates that the transformation process that PRASA had undertaken, its capital improvements program, and the compliance agreements signed with environmental regulatory agencies, have been the right steps to move the agency towards excellence."

"Market conditions yesterday saw an improvement in comparison to the last few days, providing the opportunity to place this offer," Irizarry said. "The demand for the bonds was similar to that for a higher rated issue. Over 40 institutional investors placed orders generating a threefold oversubscription, clearly confirming the acceptance and attractiveness of Puerto Rico paper. The interest shown by these institutions is the strongest we have seen in the market in several months."

The financing represents an important development in the Commonwealth's planned five-year $1.98 billion program to invest in new facilities and modernize its water delivery and sewage systems. Approximately $830 million of proceeds will be used to restructure existing debt to better manage maturities.

Among the principal infrastructure projects to be developed with these funds, Ortiz mentioned the Valenciano Reservoir in San Lorenzo, at a cost of $165 million; the expansion of the Patillas Filtration Plant ($26 million); and the rehabilitation of the Puerto Nuevo Sanitary Sewer Plant ($60 million). Likewise, investments will be made to achieve the rehabilitation and expansion of the La Plata in Toa Alta ($30 million); the construction of the Beatriz Reservoir in Caguas ($85 million); and expansion of the Sanitary Sewer Plant in Yauco ($39 million).

PRASA supplies water and sewage services to 97% of Puerto Rico's population of 3.8 million and the approximately one million tourists who annually visit the island. The GDB oversees all public debt issued for the Commonwealth.

"PRASA is a classic case of how an agency with 20 years of weak operational history can dramatically improve," Irizarry said. "Since 2005, the utility has transitioned into a modern organizational structure and culture, with strong financial underpinnings. This turnaround is reflected in the investment grade ratings, with stable outlook, and our ability to sell this issue to great demand in today's turbulent market for municipal bonds. Our constant and effective communication with investors once again translates into a huge appetite for Puerto Rico bonds, in this case for PRASA bonds."

The issue had a 6.05% yield and an average life of 27 years. Approximately $1.2 billion Revenue Bonds were placed in the U.S. tax-exempt market and some $300 million Refunding Bonds were sold locally. "Once again Puerto Rican investors showed their confidence in our Government by supporting this issue," said the GDB President.

The bonds are rated BBB- by Standard & Poor's and Fitch, and Baa3 by Moody's.

Citigroup and Morgan Stanley were co-lead managers for the issue segment sold in the U.S. market, and Bear Stearns was co-manager. Popular Securities Inc. acted as senior manager on the taxable revenue bonds sold on the local market.

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