Puerto Rico GO bonds plunge 21% due to Hurricane Maria

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Puerto Rico’s general obligation bonds maturing in 2035 have fallen 21% in secondary market trading amid concern over the economic damage from Hurricane Maria.

According to Markit trading on the bond issued in 2014 dropped to 46.75 cents on the dollar Monday from 59.25 cents on Sept. 12.

“It is hard to imagine that current bond holders will be given priority consideration by the [Puerto Rico Oversight] Board when basic human services are in desperate need of repair,” said Howard Cure, director of municipal research at Evercore, said in an email. “The hurricane continues to result in the evacuation of families to the mainland, many of whom may never return. It is unclear how much the federal government will contribute to the restoration and improvement of the island’s infrastructure and what proportion Puerto Rico will have to contribute to this large task.

“Due to these many unanswered questions, it is no wonder that the market value has declined,” Cure said.

“The storms’ disruption of manufacturing, retail sales, tourism and other commercial activity will further sap Puerto Rico's economy, depending on the duration of utility outages, extent of destruction to infrastructure and private property, and longer-range demographic repercussions," Moody's Investors Service said. "The amount and timing of federal assistance will be critical determinants of Puerto Rico’s economic recovery.”

Moody’s Analytics estimated Maria’s cost to the island, including lost output, at $45 billion to $95 billion, equal to 65% to 135% of Puerto Rico’s gross national product.

“In the judicial debt restructuring process, a weaker economic outlook could support arguments in favor of lower bondholder recoveries,” Moody’s Investors Service said in its report “Damage from Hurricanes Irma and Maria poses a challenge to credit quality.”

On Tuesday Pres. Trump visited Puerto Rico to discuss Maria. In a CNN video he said that federal and local officials can be “very proud” that so far there were only 16 deaths certified as connected to Maria in Puerto Rico. He said this compared to the “thousands” of deaths [actually about 1250 to 1850] that Hurricane Katrina triggered in 2005.

"I hate to tell you Puerto Rico, but you've thrown our budget a little out of whack," CNN reported Trump as saying. "Because we've spent a lot of money on Puerto Rico and that's fine, we've saved a lot of lives."

In other Puerto Rico news related to the federal government, Puerto Rico Resident Commissioner Jenniffer González Colón tweeted Tuesday that the U.S. House Energy and Commerce Committee was poised to approve money so that Puerto Rico didn’t run out of Medicaid funds this fiscal year.

In a letter she sent Monday to the chairman and ranking members of the committee, she said the island faced running out of Medicaid funds in November.

According to a federal government source the committee was poised to vote Wednesday on an extra $1 billion for Puerto Rico Medicaid funding and additional money for the Children’s Health Insurance Program.

The Hill reported that the bill with the Puerto Rico Medicaid funding has no Democratic representatives supporting it because it has other provisions that they oppose.

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