Puerto Rico general obligation bond prices tumbled yesterday after the island’s federally appointed oversight board put the squeeze on bondholders late on Monday by announcing a plan to invalidate about half of the U.S. commonwealth’s full faith and credit-backed debt, Reuters reported. The board, along with an unsecured creditors committee, asked the U.S. District Court overseeing Puerto Rico’s bankruptcy case to wipe out more than $6 billion of GO bonds sold by the island in 2012 and 2014 that were already in default. The news pushed prices on bonds due in 2035 with an 8 percent coupon down into the 48 to 49 cents on the dollar range from 53.5 cents on Monday. With one debt restructuring completed and others in the works, the board is taking aim at the island’s roughly $13 billion of GO bonds and nearly $50 billion in unfunded pension liabilities. As a prelude to mediation, the board and creditors committee are seeking to declare some of the GO bonds null and void because their issuance exceeded a debt limit and violated a balanced budget requirement in Puerto Rico’s constitution.
