UPDATE 2-Puerto Rico bonds sink as commonwealth hires restructuring experts

Fri Apr 11, 2014 4:58pm EDT

(Adds historical prices, context)

NEW YORK, April 11 (Reuters) - Prices of Puerto Rico's newly issued $3.5 billion debt sank in heavy trade late on Friday, hitting the lowest price ever at the end of a week when the indebted U.S. commonwealth hired additional teams of debt restructuring experts.

Adding to concerns that the islands could be preparing to restructure its debt, Puerto Rico's Government Development Bank, the commonwealth's financing arm, on Thursday hired a third company with restructuring expertise as it tries to balance its budget while jump-starting a struggling economy.

"When the commonwealth retained restructuring teams, that seemed to be a catalyst for selling to break the original issue price," said Randy Smolik, senior analyst at Thomson Reuters Municipal Market Data.

The debt traded at a low of around 86 cents on the dollar, pushing the yield to 9.549 percent, according to Municipal Market Data. Traded volume was over $178 million, according to MMD.

The sale of the $3.5 billion junk-rated bonds on March 11 attracted scores of hedge funds eyeing fat yields and trading gains. Analysts at the time said that could make trading in the bonds unsually volatile for the sleepy muni market, where buy-and-hold retail investors dominate and most debt rarely trades.

Puerto Rico on Thursday hired West Palm Beach, Florida-based FTI Consulting, a global advisory firm that includes restructuring and turnaround experts. That followed the hiring of Cleary Gottlieb Steen & Hamilton on Monday and Millco Advisors LP last month.

Prices on Puerto Rico's debt started to move lower on Monday after weeks spent hovering around the issue price of 93 cents. Friday's selloff took the average price for the bonds to 88.176 cents, also a new low. That corresponded to a yield of 9.284 percent. (Reporting by Edward Krudy; Additional reporting by Robin Respaut; Editing by James Dalgleish, Meredith Mazzilli and Jonathan Oatis)