Puerto Rico issues were mixed in rather quiet trading on Tuesday after Standard & Poor's lowered its rating on the Puerto Rico Public Finance Corp.
S&P dropped the PFC's $1 billion of Series 2011A, 2011B, and 2012A bonds to D from CC following a payment default on the bonds. The PFC made a partial payment of $628,000 in interest, but it was short of the $58 million of principal and interest that was due.
"This first default by Puerto Rico on tax-supported debt represents a significant departure from Puerto Rico's past practice of timely funding of debt service," S&P said in a press release. "Puerto Rico's decision to deliberately miss the PFC bonds' relatively small $58 million debt service payment, compared to annual revenues of about $9 billion, indicates that short-term liquidity distress has taken priority over preserving access to debt markets."
The action didn't seem to have much of a spillover effect on some issues, probably since the market had already priced in a high-risk outlook on most Puerto Rico issues.
"Getting access to a new line of credit is now unlikely, leaving creditors in a precarious position. For a long time, bond markets have been unprepared to recognize the real risk of Puerto Rico's debt because of the favorable tax status of their bonds," Maurice McTigue, Vice President at the Mercatus Center at George Mason University, said in a comment. "The outlook is quite grim as those bonds await substantial losses. The outlook for the people of Puerto Rico is equally bad as they face scenarios of hardship and austerity equal to that of the Greeks."
The most actively traded Puerto Rico issues were from the Commonwealth itself, the Infrastructure Financing Authority, the Highway and Transportation Authority, the Convention Center District Authority, the Municipal Finance Agency and the Puerto Rico Electric Power Authority, according to the Municipal Securities Rulemaking Board's EMMA website.
The Puerto Rico Commonwealth Series 2014A GO 8s of 2035 traded at a low price of 68.158 cents on the dollar, a high yield of 12.321%, in 16 trades for $21.41 million. The largest trade was when a customer sold $3 million of the 8s for 69.50, a yield of 12.076%. On Monday, the 8s traded as low as 67.95, a high yield of 12.36% in 22 trades totaling $7 million. The largest two trades were for $2 million each when customers bought the bonds at 69.25, a yield of 12.121%. Last Friday, the bonds traded at a low price of 70.032, a high yield of 12.304% in 17 trades for $19.08 million. The largest trade was for $5 million when a customer bought the GOs for 69.625, a yield of 12.054%, according to EMMA.
The Commonwealth's Series 2012A public improvement refunding 5s of 2041 were trading at a low price of 54.855 cents on the dollar, a high yield of 9.846%, in 63 trades totaling $4.67 million. On Monday, the bonds traded at a low price of 56.50, a high yield of 9.566%, in 43 trades totaling $1.75 million, according to EMMA.
The Infrastructure Financing Authority's 2006 special tax revenue 5s of 2046 were trading at a low price of 20.304 cents on the dollar, a high yield of 24.671%, in 25 trades totaling $825,000. On Monday, the bonds traded at a low price of 20.125, a high yield of 24.887%, in one trade totaling $10,000, according to EMMA.
The Highway 2003 un-refunded revenue refunding 4.95s of 2026 were trading at a low price of 92.833, a high yield of 5.848%, in 20 trades totaling $395,000. On Monday, the bonds traded at a low price of 93.791, a high yield of 5.723% in 11 trades totaling $265,000, according to EMMA.
The Highway 2005 Series BB pre-refunded revenue refunding 5 1/4s of 2022 were trading at a low price of 116.737, a high yield of 2.585%, in five trades totaling $50,000. On Monday, the bonds traded at a low price of 114.923, a high yield of 2.767 in two trades totaling $10,000, according to EMMA.
The Convention 2006 Series A hotel occupancy tax revenue 4 1/2s of 2036 were trading at a low price of 66.786, a high yield of 7.728%, in 25 trades totaling $915,000. On Monday, the bonds traded at a low price of 68.375, a high yield of 7.525% in 16 trades totaling $395,000, according to EMMA.
The Convention 2006 Series A hotel occupancy tax revenue 5s of 2031 were trading at a low price of 79.06, a high yield of 7.237%, in eight trades totaling $255,000. On Monday, the bonds traded at a low price of 77.163, a high yield of 7.478% in eight trades totaling $160,000, according to EMMA.
The Muni 2005 Series A 5s of 2030 were trading at a low price of 86.336, a high yield of 6.434%, in 14 trades totaling $440,000. On Monday, the bonds traded at a low price of 86.018, a high yield of 6.471 in seven trades totaling $205,000, according to EMMA.
The PREPA 2005 Series SS power revenue refunding 5s of 2017 were trading at a low price of 99.209 cents on the dollar, a high yield of 5.44%, in six trades for $100,000. On Monday, the bonds traded at a low price of 98.66 cents on the dollar, a yield of 5.75%, in two trades of $50,000 each for $100,000, according to EMMA.
The PREPA 2005 Series SS power revenue refunding 4 1/4s of 2017 were trading at a low price of 96.646 cents on the dollar, a high yield of 6.144%, in four trades for $40,000. On Monday, the bonds traded at a low price of 95.272 cents on the dollar, a high yield of 6.942%, according to EMMA.
The PREPA 2002 power revenue refunding 5s of 2016 were trading at a low price of 99 cents on the dollar, a high yield of 6.152%, in four trades totaling $20,000. Last Friday, the bonds traded at a price of 98.555, a yield of 6.664%, in one trade of $10,000, according to EMMA.
"As expected, Puerto Rico defaulted on payment of debt service of about $58 million for its Public Finance Corp. ($628,000 was paid from funds remaining from previous appropriations)," Alan Schankel, Municipal Strategist at Janney, wrote in a Tuesday report. "The Aug. 1 debt service payments for COFINA Sales Tax and Government Development Bank issues were made. The nonpayment on PFC bonds, which are payable from legislative appropriations, represents the first major default on Puerto Rico debt, as the commonwealth, faced with a liquidity crunch, chose to conserve cash rather than meet its debt service promises."
