Puerto Rico GO bonds trade at more than 3-month high

NEW YORK Tue Aug 19, 2014 4:25pm EDT

NEW YORK Aug 19 (Reuters) - Puerto Rico's benchmark general obligation bonds rallied to their highest level in over three months on Tuesday as investors bet the bonds will be not be affected during a possible restructuring of the island's power authority.

The general obligation bonds maturing in 2035 and carrying a coupon of 8 percent traded at 91.101 cents on Tuesday, up from 89.784 on Monday, and 7.8 percent above an average low of 84.511 reached on July 6. The average price of the bonds was last above Tuesday's high on May 9.

Tuesday's price corresponded to an average yield of 8.953 percent.

The power authority, known as PREPA, won creditors' agreement last Thursday to extend $671 million of credit lines it uses to buy oil until March. PREPA also agreed to meet a $209 million coupon payment to bondholders due on Jan. 15.

PREPA bonds rallied on the news that investors will get another coupon payment. But they are still trading at distressed levels, reflecting the view that bondholders will eventually take losses when PREPA restructures.

The Government Development Bank said on Tuesday that duties of a new chief restructuring officer position at PREPA, created as part of the agreement with creditors, will include financial restructuring. PREPA and bondholders must agree on the appointment by Sept. 8.

PREPA bonds maturing in 2032 and carrying a 5 percent coupon traded at an average price of 54.511 cents on Tuesday, up from 50.893 cents during the previous session. Tuesday's price was the highest average price for the bonds since June 23. (Reporting by Edward Krudy)