Puerto Rico Surprise: Scores With Upsized Bond Offering

The draw here was the 8% coupon, plus the local government’s comments in recent weeks on getting its finances back on track after its debt rating downgrades that took it to junk rating. On top of the 8% coupon, the bond offering is reportedly pricing at a discount. That puts the yield up around 8.70%.

Investors have to recall that Puerto Rico is considered to be like a municipal bond offering. It is free from federal taxes, and it should be free from the Obamacare tax as well.

The maturity is out to 2035, and the pricing is said to be with a yield of just over 8.72%. We had indications on Monday that this offering was going to be 8.625% to 8.875%.

When the downgrades came from the ratings agencies last month, the fear was growing that Puerto Rico was going to have to raise its much needed capital at yields above 10%.

The thought of selling a 21-year issuance at 8.7% has not been seen for a very long time in the United States. Still Puerto Rico’s finances are a mess. The good news here is that the pricing was just nowhere nearly as bad as it would have been a month ago.