UPDATE 2-Puerto Rico pays heavy price in $1.2 bln note sale

viernes 10 de octubre de 2014 17:48 GYT

(Adds Moody's quote, details of transaction)

By Edward Krudy

NEW YORK Oct 10 (Reuters) - Puerto Rico paid a steep price to complete a $1.2 bln short-term financing deal on Friday as bonds of the indebted commonwealth slipped to a three-month low and recent data showed the economy and tax revenues remain weak.

Puerto Rico paid an interest rate of nearly 8 percent to borrow from a syndicate of banks until next June, the commonwealth's Government Development Bank (GDB) said on Friday, a hefty premium compared with top-rated municipal borrowers, who pay about 0.13 percent to borrow for a year.

Traditional muni investors are largely steering clear of Puerto Rico with its debt load of over $70 billion. The Commonwealth passed a law in June that enables it public corporations to restructure around $20 billion in debt, further spooking bondholders.

The exodus of traditional muni funds has left Puerto Rico's financing needs in the hands of banks and hedge funds. Friday's note deal was the first time the island had borrowed money since March when it issued $3.5 billion in general obligation bonds, a deal bought mainly by hedge funds.

"Clearly the commonwealth only has access to a very limited audience and that's why they have had to pay such high rates," said Triet Nguyen, an analyst at NewOak.

Hedge funds did not take any of the note sale on Friday, a person close to the transaction said. However, the banks could sell on the notes at a later date, according to another person involved in the sale. The people were not authorized to talk to publicly about the deal.

Puerto Rico's benchmark general obligation bonds fell to the lowest since July on Friday. The bond, which carry an 8 percent coupon and mature in 2035, traded at an average price of 87.833 cents on the dollar and a yield of 9.336 percent, according to Municipal Market Data (MMD).   Continuación...