Puerto Rico Trading at Lowest Price After Moody’s Rating Cut

Puerto Rico general-obligation bonds are trading at record low prices after a triple downgrade yesterday.

Securities maturing July 2035 and originally sold at 93 cents on the dollar in March traded at 11:45 a.m. today at an average 84.8 cents, data compiled by Bloomberg show.

Individual investors and institutional buyers are putting out feelers to see how much they would receive on the Puerto Rico bonds if they were to sell, said Dan Toboja, senior vice president of muni trading at Chicago-based Ziegler Capital Markets.

“There’s a lot people trying to feel out the market and see what the bid side is,” Toboja said. “It just shows the amount of concern that people do have for Puerto Rico going forward.”

Investors are demanding more yield to buy commonwealth debt after lawmakers last week enacted a bill that would allow certain public corporations to restructure debt. The move prompted the three-level ratings cut for the island as a whole. Moody’s Investors Service slashed Puerto Rico’s $14.4 billion of general-obligation debt yesterday to B2, five steps below investment grade, from Ba2.

Common Plight

The New-York rating firm also dropped Puerto Rico’s sales-tax bonds, known as Cofina debt, to junk, cutting the senior-lien securities to Ba3, three levels below investment grade, from Baa1. It downgraded the subordinate bonds to B1, four steps below investment grade, from Baa2. The change affects $15.6 billion of sales-tax debt and strips Puerto Rico of any way to borrow at investment-grade prices.

The drop in prices today follows a selloff yesterday. Debt sold by the commonwealth and its entities lost 2.13 percent yesterday, the biggest one-day decline since Oct. 10, according to S&P Dow Jones Indices. The $3.7 trillion municipal-bond market lost only 0.14 percent.

Senior-lien sales-tax debt maturing August 2040 traded today at 11:40 a.m. at an average 76.1 cents on the dollar, the lowest price since Feb. 19, Bloomberg data show.

Even though the new debt-restructuring law excludes changes to general-obligation and sales-tax debt, investors are viewing all the island’s obligations as troubled, Toboja said.

“The market probably believes that most of Puerto Rico’s debt is all in the same boat, at the end of the day,” Toboja said.

Yields on benchmark municipals maturing in 10 years were little changed from yesterday at 2.38 percent at noon, Bloomberg data show.

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