PREPA Bonds Trading Near Historically High Yields, Officials Say By EVA LLORENS VELEZ Bonds from Puerto Rico’s Electric Power Authority (PREPA) are trading near historically high yields a week before the authority plans its first bond sale in a year, making them an appealing choice, according to a Bloomberg report Thursday. PREPA is slated to go to the market Tuesday with a $600 million bond issue, to help pay for infrastructure projects in its capital improvement program. PREPA securities maturing in July 2040 were recently rated one step above junk by Moody’s Investors Service, with an average yield of 6.85 percent. The interest rate reached 7.37 percent last month, the highest since the debt sold in March 2010, data compiled by Bloomberg show. The fiscal health of the utility is linked to that of the commonwealth, which is ranked by the three major rating companies as one level above speculative grade, Lord Abbett & Co.’s Daniel Solender told Bloomberg. Next week’s sale may offer yields of about 6.75 percent, said Solender, along with portfolio managers Dennis Derby at Wells Capital Management, Tom Spalding at Nuveen Investments Inc., and Michael Walls at Waddell & Reed Financial Inc. It’s the first borrowing from a Puerto Rico entity since November and the biggest in almost 16 months, Bloomberg data show. Debt sold on the island is tax-exempt in all U.S. states. The utility may need to offer yields above 6.75 percent to lure buyers given the deal’s size and withdrawals from municipal mutual funds, said Walls, who helps manage $2.2 billion in high-yield munis at Waddell & Reed in Overland Park, Kan. Bloomberg says investors have pulled $14.7 billion from muni funds in the eight weeks through July 24, the most since February 2011, Lipper US Fund Flows data show. The Puerto Rico agency’s securities are appealing when compared with corporate bonds, Walls told Bloomberg. For investors in the top federal tax bracket, the 6.85 percent yield equals a taxable return of 11.34 percent. That’s more than double the 5.28 percent on an index of 30-year company bonds with similar ratings. The spread between the electric authority bonds maturing in July 2040 and the corporate index is 1.2 percentage points, the most since the Puerto Rico bonds were sold in 2010, Bloomberg said.
Posted on: Fri, 02 Aug 2013 17:04:45 +0000
Trending Topics
Recently Viewed Topics
© 2015