Puerto Rico’s Housing Debt Likely To Be Paid In Full (Opposed to PR’s General Obligation and Agency Debt)

Puerto Rico is seeking to reduce $74 billion of debt,  but Federal housing bonds may be paid in full. Thanks to the US Department of Housing and Urban Development (HUD).
(Bloomberg) — While Puerto Rico and its agencies seek to reduce $74 billion of debt in a record bankruptcy, commonwealth bonds repaid with federal housing money and tobacco settlement funds may dodge a restructuring, according to Moody’s Investors Service.

After Puerto Rico first began defaulting on its obligations two years ago, a federal oversight board on May 3 sought for the commonwealth a form of bankruptcy called Title III. There are six entities remaining that have yet to miss payments to investors. Of those, debt sold by Puerto Rico’s Housing Finance Authority and the Children’s Trust Fund may avoid asking bondholders to accept losses on their securities, Ted Hampton, a Moody’s analyst, wrote in an Aug. 9 report.

“We do not expect either of these securities to be involved in the commonwealth’s debt restructuring, and the federal oversight board has not initiated a proceeding under Title III of Promesa for either of them,” Hampton wrote.

The value of the bonds reflect the strong repayment pledges. Odd-lot trades of fixed-rate Children’s Trust bonds maturing 2039 averaged 97.8 cents on the dollar Wednesday, while Housing Finance debt maturing 2027 traded at an average 104.6 cents, data compiled by Bloomberg show. By comparison, general obligations with an 8 percent coupon and maturing 2035, one of the island’s most actively-traded bonds, changed hands Thursday at about 58.8 cents.

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The island’s Housing Finance debt is repaid with yearly allocations from the U.S. Department of Housing and Urban Development, revenue that the commonwealth cannot use, according to Hampton.

“Because of HUD’s role in the program, pledged revenues are not available to the central government of Puerto Rico,” Hampton wrote in the report. “HUD sends the first dollars of amounts allocated to the authority into a line of credit control system for payment of debt service.”

The island’s tobacco bonds, sold by the Children’s Trust Fund, are secured by annual payments from cigarette manufactures under a 1998 Master Settlement Agreement between state attorneys general and the cigarette makers.

Puerto Rico and its agencies have missed about $4.45 billion in debt-service payments to investors, according to Moody’s. The four remaining entities that haven’t defaulted but may undergo a restructuring are Puerto Rico’s Aqueduct and Sewer Authority, the University of Puerto Rico, the Municipal Finance Agency and Highways & Transportation Authority bonds sold for the Teodoro Moscoso bridge.

So why Puerto Rico attempts to restructure its debt, housing debt is protected. Puerto Rico has already defaulted on it debt.

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Puerto Rican debt is now selling at $51.25 with a yield of 11.82%.

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I suppose Puerto Rico can always expand the export of rum.

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And rum ham! 

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