April 10, 2014 / 5:00 AM / in 4 years

Big hedge funds bought Puerto Rico's junk bonds - WSJ

April 10 (Reuters) - Several large hedge funds doubled down on Puerto Rico in last month’s giant bond sale despite the U.S. territory’s financial struggles, the Wall Street Journal reported, citing confidential documents reviewed by the newspaper.

Och-Ziff Capital Management, Paulson & Co, Fir Tree Partners, Perry Capital LLC and Brigade Capital Management each bought more than $100 million of the bonds, according to a list of buyers of the sale, the newspaper said. (link.reuters.com/dej48v)

Puerto Rico last month sold $3.5 billion of junk-rated bonds at a surprisingly low tax-free interest rate under 9 percent, but investor demand outstripped supply despite the Caribbean island’s difficult cash position.

Bigger than an initially planned $3 billion, the sale was oversubscribed, attracting orders worth more than $16 billion from 270 different accounts, according to the island’s Treasury. It drew scores of hedge funds and other non-traditional buyers eyeing fat yields and possible trading gains.

Hedge funds and other non-traditional buyers of municipal bonds bought about 70 percent of the deal when it was offered, according to calculations based on the document - an atypically high level for municipal-bond offerings, the Journal said.

The list doesn’t show whether the firms continue to hold the bonds, which carried junk credit ratings, or whether they sold some or all of their purchases afterward, the newspaper said. (Reporting by Supriya Kurane in Bangalore; Editing by Gopakumar Warrier)

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