Puerto Rico Bond Prices May Show Which Issues Face Biggest Loss

(Bloomberg) -- Puerto Rico's decision to head to court to reduce its debts promises to impose losses on hedge funds and others who bought the island's securities believing that they couldn't be dismissed in bankruptcy.

The move, which had been anticipated because negotiations failed to make headway, comes nearly two years after Puerto Rico began defaulting on its debts. Many investors have long anticipated not being repaid in full, though the scale of the recoveries remain difficult to gauge.

Here are the market's best guess of which bondholders will wind up on top. What follows are the recent trading prices of some of the bonds issued by the struggling island.

• General-obligations: The former governor, Alejandro Garcia Padilla started defaulting on these securities last year despite the island's constitution saying that general obligations must be repaid before other expenses. Debt due in 2039 traded at an average price of about 64 cents on the dollar.
• Puerto Rico Sales Tax Financing Corp.: The bonds, know by the Spanish acronym Cofina, are repaid from dedicated sales-tax revenue and come in two types: senior, with the first claim on revenue, and subordinated, which are second in line. The island has been paying these holders, though some general-obligation creditors sued to challenge the island's approach. Some sales-tax bonds due in 2036 are trading for 61.3 cents on the dollar, while others, with a lesser claim to the funds, trade at about half that price.
• Puerto Rico Electric Power Authority: The government reached a deal with holders of the electric utility known as Prepa in December 2015, the only consensual deal struck so far. Governor Ricardo Rossello reopened it after assuming office at the beginning of the year. The government agreed to give creditors 85 cents on the dollar for their bonds. Debt due in 2029 last changed hands for about 78 cents on the dollar.
• Puerto Rico Government Development Bank: The GDB financed public works on the island, before the federal oversight board recently approved winding it down. Bonds due in 2019 traded for about 21 cents on the dollar.
• Puerto Rico Aqueduct & Sewer Authority: The utility called Prasa provides the island with water and pays creditors with revenue received from customers. Prasa is seeking to cut $4 billion of its debt load according to a plan submitted to the federal oversight board, which approved a rate hike for customers last week. Bonds due in 2044 traded at 82 cents on the dollar.
• Puerto Rico Highways & Transportation Authority: The highway agency repays its debt with gas-tax revenue. Debt due in 2030 last traded at about 25 cents on the dollar.
• Puerto Rico Public Buildings Authority: Bonds are repaid with lease revenue from the public agencies that use their office buildings. Debt maturing in 2042 last traded for about 58 cents on the dollar.

--With assistance from Brian Chappatta and Michelle Kaske

To contact the reporter on this story: Rebecca Spalding in New York at rspalding@bloomberg.net.

To contact the editors responsible for this story: Christopher Maloney at cmaloney16@bloomberg.net, William Selway