Some Puerto Rico general obligations rallied to the highest price in nearly 17 months after the island elected New Progressive Party candidate Ricardo Rossello for governor, ushering in a change of power after the island defaulted on a growing share of its debt, Bloomberg reported yesterday. General obligations with a 5 percent coupon and maturing in 2041 traded Wednesday for an average of 65 cents on the dollar, the most since June 23, 2015, and up almost 2 cents from a day before. Rossello favors paying bondholders interest if they agree to wait longer for principal payments. That’s a break with Gov. Alejandro García Padilla’s administration, which has defaulted on $1.8 billion of debt-service costs since August 2015, including on general obligations, which the island’s constitution says must be paid before other expenses. Rossello’s win empowers the party that’s pushing for U.S. statehood just as Puerto Rico struggles with a fiscal crisis so severe it prompted the federal government to step in. The new administration will have its power curtailed by a seven-member federal board with authority to approve the budget and any plan to restructure the island’s debt. Puerto Rico’s most actively-traded general obligation also gained in value Wednesday. General obligations with an 8 percent coupon and maturing in 2035 traded at an average price Wednesday of 71.5 cents on the dollar, the highest since March 22. Rossello faces considerable challenges. Puerto Rico’s population has declined in the past decade and the next administration must also find ways to turnaround an economy that’s failed to grow since 2007.
