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Economy & Policy

For Puerto Rico Debt, Good News May be Short-Lived

There is, apparently, strong demand for Puerto Rico’s $3 billion General Obligation Bond offering.  The debt offering originally priced at an 8% coupon with potential yield between 8.625% and 8.875%. The yield comes below the 10% some analysts expected. 

Robert DiMella, co-Head of MacKay Municipal Managers, which manages $7.5 billion in municipal bonds for investors at MacKay Shields, said the deal looks good for Puerto Rico.  

He said the underwriters priced the deal, “along the lines of a typical corporate pricing not a municipal pricing. They simply started taking orders today, built the book and closed for any new orders."

The embattled island will be able to sell its debt at better-than-expected prices with strong demand expected from non-traditional muni-bond buyers. DiMella, in an exclusive interview with FOX Business's Pension Crisis Team, said the good news will be short-lived. 

“Issuers in the capital markets do not go to hedge-fund investors to try and place deals unless basically they are a little more desperate than not," he said.

Traditional retail investors in Puerto Rico’s debt were cut out of this bond offering after the three major ratings firms lowered the ratings on Puerto Rico to junk status.  DiMella said the debt sale buys Puerto Rico some time, but not much.  He expects Puerto Rico to restructure its non-GO debt at some point in the next year or two. That will impact retail investors -- some of whom aren't aware they own municipal debt.

Adam Shapiro joined FOX Business Network (FBN) in September 2007 as a New York based reporter.