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

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 09, 2018

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)

Latest News

Retirement dream looking more like a luxury as cost-of-living squeezes savings
Retirement dream looking more like a luxury as cost-of-living squeezes savings

New research reveals rising expenses, forced early exits, and a widening gap between how long people live and how long their money lasts.

Advisor moves: LPL, Raymond James, Brighton Jones raid the talent pool
Advisor moves: LPL, Raymond James, Brighton Jones raid the talent pool

Firms continue their quest to attract and retain the best advisor teams.

Most advisors say AI portfolio construction is worth $500 a month
Most advisors say AI portfolio construction is worth $500 a month

A survey from TacticalMind AI found 69% of advisors say a high-quality AI platform that makes investment recommendations and constructs portfolios is worth $500 monthly, while research-only tools are valued closer to $250.

CAIS embeds Claude AI into advisor workflows for alternatives intelligence
CAIS embeds Claude AI into advisor workflows for alternatives intelligence

The alts tech provider's latest integration lets advisors query fund data and surface portfolio insights without leaving their primary workspace.

FINRA puts structured product supervision under the microscope
FINRA puts structured product supervision under the microscope

The regulator is scrutinizing how some firms oversee concentrated positions in complex "worst-of" notes – and wants answers.

SPONSORED Beyond wealth management: Why the future of advice is becoming more human

As technical expertise becomes increasingly commoditized, advisors who can integrate strategy, relationships, and specialized expertise into a cohesive client experience will define the next era of wealth management

SPONSORED Durability over scale: What actually defines a great advisory firm

Growth may get the headlines, but in my experience, longevity is earned through structure, culture, and discipline