Puerto Rico Tollroads upgraded to BBB-plus by Fitch Ratings

The Puerto Rico Tollroads, LLC's senior lien revenue bonds were upgraded to BBB-plus from BBB by Fitch Ratings, a highly unusual occurrence for Puerto Rico municipal bonds.

Fitch cited positive trending traffic and revenue.

While the issuer is a private entity, the source of income was formerly under Puerto Rico government control and the bonds are tax-exempt municipal bonds. This is the first upgrade of bonds supported by assets currently or formerly in government hands since the passage of the Puerto Rico Oversight, Management and Economic Stability Act in 2016, which opened the way for restructuring the debt.

Most Puerto Rico debt is unrated, as agencies withdrew ratings in the lead up to or after the restructurings.

The Puerto Rico Tollroads upgrade "is a positive development, but whether the government debt will be reclassified is another matter," said John Mudd, an attorney in the commonwealth.

"The economy of Puerto Rico is proving more resilient than what some observers projected," said Vicente Feliciano, president of Puerto Rico-based Advantage Business Consulting. "In this case, usage of the tollroads has been satisfactory in spite of demographic challenges."

Fitch has also rated BBB-plus the approximately $372 million of senior variable rate demand revenue bonds the Puerto Rico Tollroads is bringing to market to take out a portion of a senior secured loan facility. Along with upgrading the existing $286 million senior lien revenue bonds, the agency also upgraded to BBB-plus from BBB a term loan, which has $1.43 billion outstanding.

"Projected financial metrics are very strong, with a minimum project life coverage ratio of 2.2 times and leverage projected to decline below eight times over the next three year[s]," Fitch said.

The upgrade is constrained by the possibility the Puerto Rico Tollroads will issue new parity debt, or "regear" in Fitch's terms, although the agency doesn't anticipate this in the near term.

Fitch said the rating is supported by an extensive toll road network that serves a growing commuter base. The project has a long concession life and is supported by an adequate toll adjustment mechanism, Fitch said.

Puerto Rico Tollroads, a subsidiary of Abertis Infraestructuras S.A., leased four highways from the Puerto Rico Highways and Transportation Authority in December 2023. PRT paid $2.85 billion upfront, which was used to pay off $1.24 billion of toll revenue bonds. Those bonds were issued under a bankruptcy plan of adjustment that wrote down a substantial share of the $4.3 billion of HTA bonds outstanding before Puerto Rico's bankruptcy.

The road bonds and loan are backed by tolls on Puerto Rico-52/PR-18, PR-66, PR-53, and PR-20, which previously backed the Puerto Rico Highways and Transportation Authority bonds.

The VRDBs will be paired with an interest rate swap to provide fixed-rate financing, Fitch said.