Puerto Rico Infrastructure Debt Sinks to All-Time Low on Default

BloombergBusiness – Elizabeth Campbell

Prices slump below 10 cents on the dollar for first time
$35.9 million of infrastructure payments will be skipped

Puerto Rico’s infrastructure bonds fell to an all-time low after commonwealth officials said the island would skip $35.9 million of payments on the securities and instead divert the money to other debt.

-1x-1Puerto Rico Infrastructure Financing Authority’s bonds with a 5 percent coupon that mature in July 2046 traded for an average of 9 cents on the dollar on Thursday, the lowest since the bonds were issued in 2006, according to Bloomberg data. That compares with 61.7 cents a year earlier. The bonds yield about 56 percent.
The average price fell below 10 cents for the first time ever on Wednesday after Governor Alejandro Garcia Padilla said the commonwealth would default on $37 million of bond payments due Jan. 1. The missed payments include $1.4 million owed on Public Finance Corp. bonds, the officials said. The defaults are only a fraction of the almost $1 billion in interest due at the start of the year.
The Infrastructure Financing Authority, called Prifa, will default on some payments but will make others that are guaranteed by the commonwealth. The agency sold the island’s rum-tax bonds, and those securities are repaid from federal excise taxes on rum made in Puerto Rico. In December, the central government started using Prifa’s revenue to repay its direct debt such as general obligation securities.
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