Bond Insurers Tumble Most Since July on Puerto Rico Concerns

  • Moody's says investors should brace for Dec. 1 missed payments
  • Any good news now will be wiped out by defaults, Height says

Shares of the two biggest bond insurers plunged this week by the most since July on speculation that Puerto Rico is moving closer to default as the commonwealth and its agencies fail to win consensus with creditors on debt-restructuring proposals.

Assured Guaranty Ltd. dropped by 9.6 percent this week, while MBIA Inc. plunged 16 percent. Puerto Rico’s payments to investors are set to swell in the coming weeks: Across all its securities it has $467 million of principal and interest due on Dec. 1 and $958 million owed on Jan. 1. Moody’s Investors Service said this week that Puerto Rico is likely to default on at least a portion of the $354 million Government Development Bank bond payments due Dec. 1. Bank of America Merrill Lynch said in report Friday that it’s clear the island faces a liquidity crisis and will have to restructure its debt.

The share-price plunge comes despite the fact that the cash-strapped Puerto Rico Electric Power Authority extended an agreement with some bondholders to Nov. 20, giving the utility more time to negotiate with insurers including Assured and MBIA. That lessens the risk that a previously struck deal with some bondholders will fall apart.

“We are concerned that that any near-term positive headlines will quickly be usurped by negative ones,” Ed Groshans, an analyst at Height Securities LLC, wrote in a report Friday. “Any positive momentum achieved from the encouraging signs in recent days could be sapped by missed bond payments between now and January 1. ”

The insurers pared losses Friday. Assured rose 1.6 percent to $26.65 as of 3:26 p.m. in New York and MBIA gained 4.2 percent to $6.93. The drop this week is the biggest since July, when shares plunged in the wake of Governor Alejandro Garcia Padilla June 29 comments that the commonwealth can’t afford what it owes.

The island has already defaulted on bonds sold by its Public Finance Corp., which were secured only by the legislature’s promise to appropriate funds. Its general obligations are backed by a constitutional pledge to pay investors before anything else.

Assured, whose shares climbed close to the highest since 2007 on Nov. 6, backs about $5.8 billion of commonwealth debt as of Sept. 30, as measured by gross par outstanding, company filings show. MBIA’s National Public Finance Guarantee Corp. insures $4.3 billion.

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