Puerto Rico bonds have outperformed U.S. stocks, corporate debt and every other corner of the municipal-securities market since the Caribbean island’s financial crisis precipitated an unprecedented federal takeover, Bloomberg News reported today. Yet investors still don’t know how much of what they’re owed they’ll get back. The rally, which pushed the S&P Dow Jones Puerto Rico index up nearly 14 percent since mid May, came after a series of defaults led President Barack Obama to enact a law in June aimed at halting the collapse. The resolution will now largely be up to a seven-member federal control board, which is entrusted with overseeing talks with creditors to restructure the island’s $70 billion of debt. If investors balk, Puerto Rico now has the power to have debt written down in court, as is routinely done in bankruptcy. While the control board was formed late last month, investors still have no clear indication of how much of their debt they’ll recoup — or when. One of Puerto Rico’s most frequently traded securities, general obligations due in 2035, sold yesterdayfor an average of 65.6 cents on the dollar. Read more.
In related news, Puerto Rico's governor yesterday said that the island's power utility hoped to restore electricity to about half its 1.5 million customers by the afternoon, after a fire at an energy plant knocked out electricity for the bulk of the island. Governor Alejandro García Padilla said power had already been restored to about 130,000 people. The power authority, PREPA, said on Wednesday that two power lines, each 230,000 volts, failed for reasons still being determined. PREPA plants are largely outdated, and the agency has debt of more than $8 billion. Garcia Padilla said the switch where the fire occurred was correctly maintained. Read more.
