NEW YORK, March 29 (Reuters) - Puerto Rico’s benchmark 2035 general obligation bonds traded as low as 60.7 cents in light trading on Wednesday, their lowest price since the $3.5 billion issue was sold in 2014, according to Thomson Reuters data.
The bonds, which had not traded since March 22, later recouped some value, trading at 62 cents.
The debt has been in default since last year when the U.S. Congress passed a rescue law known as PROMESA that created a debt restructuring process for Puerto Rico. Defaulted debt trades more like an equity and is not typically quoted with a yield.
The U.S. territory is facing an economic crisis marked by $70 billion in debt, a 45 percent poverty rate and rampant emigration, with creditors expected to take cuts to repayment as part of a looming restructuring.
The 2035 bond has plummeted since opening at 73 cents on March 13, the day Puerto Rico’s federally appointed financial oversight board approved a turnaround blueprint for the island that contemplated only $800 million a year to pay debt, a fraction of what Puerto Rico owes.
Hector Negroni, whose private equity firm, Fundamental Credit Opportunities, holds Puerto Rican GO debt, downplayed recent price drops.
“Prices move for lots of reasons, but they don’t reflect the value of my priority or the reality of the fiscal picture,” Negroni said in an interview.
In Puerto Rico’s case, a sizable portion of the heavily distressed bonds are held by hedge funds, and trade lightly. Prices reflect dwindling confidence among some traders about the island’s ability repay GO debt, which is guaranteed by its constitution.
But whether and how much GO debt Puerto Rico can pay may ultimately be decided by courts. Under PROMESA, the territory has until May 1 to negotiate a consensual debt restructuring with creditors without facing lawsuits.
After that date, creditors can sue the island, or it could commence a court-supervised restructuring process akin to U.S. bankruptcy protection. (Reporting by Nick Brown; Editing by Daniel Bases and David Gregorio)