UPDATE 1-Puerto Rico lawmakers remove interest cap from $2 bln bond deal
(Adds details of amendments)
Feb 10 (Reuters) - Puerto Rico's lawmakers have scrapped a statutory cap on the interest the island would pay on a roughly $2 billion bond deal in a bid to make it more appealing to hedge fund investors.
The move comes after a federal judge voided a local law that was key to Puerto Rico's efforts to carry out an orderly restructuring of its public corporations while securing funds for the central government.
The judge's ruling late on Friday that the Recovery Act contravenes federal law, raised questions about the strength of government-backed debt, sending benchmark Puerto Rico's bonds to record lows on Monday.
Eliminating the interest rate cap was "necessary to make viable a successful transaction in the capital markets because of current market conditions and the current value of Puerto Rico general obligation bonds," according to the legislation approved by the Senate.
The amendment eliminated a restriction on how large a discount Puerto Rico could offer buyers that would have established a floor of 93 cents on the dollar, but they kept a provision that limits the average coupon rate to 8.5 percent.
The elimination of the discount restriction removes what would have been a roughly 9.2 percent cap on the yield even though the debt is trading with yields at over 10 percent.
Puerto Rico's House approved the measure on Tuesday after the Senate backed it late the previous day.
Puerto Rico was planning to issue the bonds last year but delayed the sale due to disputes about raising a tax on oil needed to back them. Puerto Rico issued $3.5 billion of debt last March that was largely bought by hedge funds as risk-averse municipal bond investors stayed away. Continuación...