WRAPUP 2-Puerto Rico bonds cap turbulent week with mild price rise

viernes 11 de julio de 2014 18:57 GYT

(Adds S&P downgrades on Friday afternoon, government reply; GDB investor conference)

By Lisa Lambert

WASHINGTON, July 11 (Reuters) - Prices on Puerto Rico debt drifted higher on Friday and trading of the junk-rated bonds slowed, calming some of the recent market turbulence inspired by the island's troubled power authority.

Late on Thursday the cash-strapped utility, the Puerto Rico Electric Power Authority (PREPA), disclosed it had used about $41.6 million from its reserves to make a July 1 bond payment of $471.56 million. The filing was a worrying indication of the independent agency's financial deterioration to investors who believe PREPA will soon default or restructure its debt.

But on Friday prices on PREPA revenue bonds maturing in 2040 reached 42.125 cents, the highest since 45.625 cents on July 1. That was equal to a yield of 13.149 percent. By early afternoon there were only three trades in the bonds, Municipal Securities Rulemaking Board data shows. In comparison the bonds switched hands 25 times on Thursday.

Meanwhile, the price on the commonwealth's general obligation bonds sold in March with an 8 percent coupon reached 86.782 cents, equal to a 9.461 percent yield, on Friday. That nearly erased the week's price drop on the bonds. The highest price the debt fetched in secondary trading on Monday was 87 cents. It then dropped swiftly, with the highest price on Tuesday only 85.6 cents, or a 9.608 percent yield.

Early on Friday the commonwealth reported that during fiscal 2014 it brought in $9.037 billion in revenue, a 5.5 percent increase from the previous year.

Still, the recent price plummet has affected the $3.7 trillion municipal market, especially the mutual funds that hold island debt. The rating agencies cut Puerto Rico bonds even further into junk after the commonwealth passed a law on June 26 allowing its most troubled public agencies to restructure debts in a process akin to bankruptcy.

And they are keeping the pressure on.   Continuación...