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Puerto Rico Agency Debt Trading Too Low, Barclays Report Says

Bonds sold by Puerto Rico agencies are trading at depressed prices that “overestimate” chances of a debt restructuring that would hurt holders, creating a buying opportunity, Barclays Plc analysts say.

Lawmakers are working on legislation that would let commonwealth utilities force bondholders to take losses. Another measure would limit the Puerto Rico Electric Power Authority’s ability to set rates. Called Prepa, it’s the island’s sole supplier.

Prepa, the Puerto Rico Highways & Transportation Authority and the Puerto Rico Aqueduct and Sewer Authority owe $19.4 billion of debt, Barclays analysts led by Tom Weyl wrote in a March 28 report. Of that, about $3 billion, or 38 percent, trades from 50 cents to 60 cents on the dollar, according to the report. About $3.2 billion, or 54 percent, trades in the range of 60 cents to 70 cents.

Even if the bills become law, “it would take some time for the legislation to be passed and implemented,” Weyl wrote in the report. During that period, investors still would be paid, cushioning risk, he said.

In transactions of $1 million or more, Prepa’s revenue bonds maturing in July 2040 traded last week at an average of 59.46 cents on the dollar, the lowest since Jan. 31, data compiled by Bloomberg show.

While prices on the debt may be volatile, “Puerto Rico bonds with low dollar prices represent value as restructuring risk is overestimated in these prices,” Weyl wrote. “We believe there is no imminent restructuring risk.”

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