Puerto Rico sales-tax bonds soar on news of debt deal

Agreement comes on the heels of a deal struck with power company bondholders last month

Aug 9, 2018 @ 4:39 pm

By Bloomberg News

Puerto Rico bonds soared as much as 30% after the island reached a debt restructuring deal with owners of its sales-tax backed securities, marking a significant milestone in the government's record bankruptcy.

The U.S. territory's subordinated sales-tax bonds due in 2039, the most actively traded, jumped to about 53 cents on the dollar from 41 cents Wednesday, while senior-lien bonds due in 2040 jumped to as much as 89.5 cents from 81.7 cents. The sales-tax bonds were the most actively traded municipal securities early Thursday, according to data compiled by Bloomberg.

Gov. Ricardo Rossello said the preliminary deal with bondholders and insurers would reduce Puerto Rico's sales-tax-backed debt — known as Cofina — by about a third and save $17.5 billion. If enacted, it would allow owners of bonds with the highest claim on the funds to recoup 93% of their investment, with 56% recoveries seen for owners of subordinated securities, according to a term sheet released by the island. That's more than investors had expected.

"It's substantial to where those bonds are trading right now," said David Tawil, president and co-founder of Maglan Capital. "Bondholders should be pretty happy about it."

It is the second major agreement for Puerto Rico in as many weeks, coming on the heels of the one struck with its power company's bondholders July 30. The deal will need to be sent to bondholders for a vote and win approval from the judge overseeing the bankruptcy before it takes effect.

The accord advances Puerto Rico's effort to cut a debt load that became unpayable after decades of free spending and corruption collided with a long-lasting recession. Now, it's trying to rebuild from Hurricane Maria and carry out a drastic course correction while it negotiates with creditors.

The deal extended a rally in the price of the securities this year amid expectations that the island will recover more quickly than initially expected from the hurricane that battered it in September. The gains Thursday left the price of the senior sales-tax bonds nearly triple what it was in late December, when they traded for about 32 cents.

Mr. Rossello said the deal was proof of his commitment to consensual dealmaking, adding that he was always open to such agreements as long as they don't endanger essential services and the island's most vulnerable. But such agreements have proven difficult, as a tangled group of interest groups all vie for preferential treatment, with billions of dollars and the future of a U.S. territory hanging in the balance.

Natalie Jaresko, executive director of the Financial Oversight and Management Board for Puerto Rico, said the agreement was a "big step forward." As part of sweeping legislation that gave Puerto Rico access to a form of bankruptcy protection, Congress installed the board to keep tabs on the island's spending.

(More: Rise of Puerto Rico bonds has blown investors' minds)

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

InvestmentNews celebrates diversity & inclusion in the financial advice business

Highlights of the Excellence in D&I Awards, showcasing the achievements of 26 individuals and firms that are moving the needle when it comes to diversity and inclusion.

Latest news & opinion

Don't be fooled by the numbers — the industry is in a dangerously vulnerable state

Last year's stock market gains helped advisers turn in solid growth in assets and revenue, but that growth could disappear in the next market downturn.

Divided we stand: How financial advisers view President Trump

InvestmentNews poll finds 49.2% approve of his performance, while 46.7% disapprove. How has that changed over the course of his presidency?

10 states with the most college student debt

Residents of these states have the most student debt when you consider their job opportunities.

Ex-Wells Fargo brokers sue for damages, claiming they lost business in wake of scandals

In a Finra arbitration complaint, two brokers allege that Wells Fargo's problems damaged their business.

Invesco to buy OppenheimerFunds

Deal brings Invesco another $246 billion in assets, as well as high-fee actively managed funds.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print