(Adds PREPA performance, governor's comment, updates market
NEW YORK, July 2 Puerto Rico benchmark general
obligation bond prices touched a record low on Wednesday as a
recent slew of ratings downgrades and concerns the
Commonwealth's public corporations will default continued to
weigh on trading.
The new low comes on a fifth day of selling in the island's
debt and will be a concern for local officials who have argued
that general obligation bonds cannot be lumped together with
peripheral issuers such as the electric power authority, PREPA.
The reaction to a new law in Puerto Rico that would allow
public corporations like PREPA to restructure appears to have
caught officials off guard. Governor Alejandro Garcia Padilla
threatened to sue Moody's after the agency downgraded the debt
three notches on Tuesday.
"Moody's acted irrationally and irresponsibly," Padilla said
at a press conference on Wednesday. "It was an act of reprisal
and revenge against the people of Puerto Rico."
Moody's declined to comment.
The single maturity general obligation debt, which carries a
coupon of 8 percent and matures in 2035, traded at 83.50 cents,
giving a yield of 9.878 percent, according to Thomson Reuters
data. The average price over the day was 84.725 cents.
The selloff in Puerto Rico debt has helped push the Barclays
Capital high yield index to its lowest level in
two months. The index has lost 2 percent since the law enabling
Puerto Rico's public corporations to restructure their debt was
announced on June 25.
The fall through Tuesday represents the steepest four-day
decline for the index since August 20, 2013. During the four
days through Tuesday the Barclays benchmark municipal market
index rose 0.2 percent.
Selling in Puerto Rico's public corporation debt also
continued for a fifth day on Wednesday. Debt of electric power
authority PREPA maturing in 2036 and carrying a 6.75 percent
coupon traded with an average price of 39.882
cents, compared to 44.50 on Tuesday.
Debt of PREPA, seen as the most likely candidate to
restructure, fell 17 percent in June, with 14.2 percent of that
coming in the last week of the month when the restructuring
legislation was announced, according Stephen Winterstein, chief
municipal strategist at Wilmington Trust Investment Advisors.
That performance "tells me that the market is expecting some
kind of restructuring with PREPA," Winterstein said.
Winterstein calculated PREPA's performance by stripping out
the utility sector from the Standard & Poor's Puerto Rico bond
(Reporting by Edward Krudy Additional reporting by Hilary Russ;
Editing by James Dalgleish and Chizu Nomiyama)