| NEW YORK
NEW YORK Puerto Rico's benchmark government bond
slumped to an all-time low on Monday after competing groups of
bondholders stepped up their legal battle over who should be
paid first out of a smaller-than-expected pool of cash.
Benchmark Puerto Rico general obligation (GO) debt maturing
in 2035 and carrying an 8 percent coupon, fell 5.15 points in
price to 61.35 on Monday, according to Thomson Reuters data.
The U.S. commonwealth is in the midst of trying to pull
itself out of a financial quagmire that leaves it with $70
billion in debt it cannot pay without a massive restructuring.
It is also fighting a 45 percent poverty rate and islanders
fleeing for the mainland in search of a better life.
The debt, which has been in default since last year when the
U.S. Congress passed a rescue law known as PROMESA that
suspended debt payments, has dropped 11.4 points in price since
a new fiscal rescue plan was accepted on March 13. Defaulted
debt trades more like an equity and is not typically quoted with
Investor sentiment turned more negative when so-called
COFINA bondholders, whose debt is backed by sales tax revenue,
asked a federal judge in San Juan on Sunday to deny the GO
bondholder group's effort to stop the island's government from
making payments on COFINA debt.
GO debt traditionally is considered senior to all other debt
obligations as it is backed by the good faith and credit of a
municipality. A larger amount of COFINA debt is
held on the island than GO debt, which is held widely in U.S.
municipal bond portfolios.
The Financial Oversight and Management Board for Puerto
Rico, established by the PROMESA law, certified a revised fiscal
turnaround plan on March 13 that set aside less money for
servicing debt payments than originally planned.
A lower-than-expected amount of money set aside to service
debt under the new plan, $800 million per year versus $1.2
billion a year over a 10-year period, puts the recovery rate for
bondholders, in aggregate, around 30 cents on the dollar,
according to analysts.
"The most liquid bond prices have dropped after the
acceptance of the fiscal plan by the PROMESA board and the
recovery rate being on the low side," said Joe Rosenblum,
director of municipal credit research at AllianceBernstein in
New York. "I'm not making a comment on whether it is correct or
final, but at least sets up from Puerto Rico's side a much lower
"That is carrying forward and over the weekend the COFINA
creditors committee went hard against the GO bondholders. We
knew all along that was going to be a tough battle," he added.
Municipal analysts at Barclays Capital estimated that even
if 100 percent of the additional revenue and expense measures
are met, "the debt stack would need to be reduced to about 31
percent in order to achieve a stable debt-to-GNP ratio."
"We assume exit yields of $4.9 percent post restructuring,
consistent with where 10 year single-B high yield municipal
bonds trade," Barclays said in a March 15th research note.