Puerto Rico wants insurers such as Assured Guaranty Ltd. and MBIA Inc. to guarantee some of the $2.9 billion of bonds that it plans to sell to stave off insolvency, Bloomberg News reported yesterday. The problem is that the insurers’ willingness to participate in the new deal depends on the amount of losses they’re forced to take on $2.6 billion of debt issued by the island’s power authority that they already back, according to Melba Acosta, president of Puerto Rico’s Government Development Bank. Bond insurers pledge to pay investors if a borrower defaults on guaranteed debt or reduces insured obligations through negotiations. “This is sort of their last shot at finding liquidity,” said Daniel Hanson, an analyst at Height Securities LLC, a Washington, D.C.-based broker dealer. If Puerto Rico is able to sell the new bonds “they need to get it done at enough size to avoid coming back to market again.”
