Puerto Rico brought its long awaited bond offering to market last Tuesday for $3.5 billion, the full amount that was authorized by the Legislative Assembly. Underwriters had talked about the deal as $3 billion, but it seemed obvious given the liquidity needs of the Government Development Bank that it would be upsized it to the full legislatively authorized limit. The bond was structured to mature in 2035 with a 2020 par call.
The deal was priced with an original issue discount of $93 and an initial offering yield of 8.727 percent. This yield was approximately 95 basis points more than secondary market trading for Puerto Rico 2035 general obligation maturity, but in line with with secondary market yield for the bond’s single call par maturity of 2020, according to Thomson Reuters Municipal Market Data.
Puerto Rico’s yield curve has been inverted for several months and the deal seems to have been priced to its par call in 2020, which was trading with a higher yield than 2035 maturities. Reuters reports:
Bigger than an initially planned $3 billion, the sale was oversubscribed, attracting orders worth more than $16 billion from 270 different accounts, according to the island’s Treasury. It drew scores of hedge funds and other non-traditional buyers eyeing fat yields and possible trading gains.
The new bonds were freed to trade late on Tuesday, and they immediately began to rise in price. Yields hovered around 8.4 percent and 8.5 percent, with the lowest reaching 8.352 percent, according to Municipal Securities Rulemaking Board data.