Puerto Rico: Drawing on cash

Last month Fitch Ratings warned that its debt rating may be reduced to junk bond status:

The commonwealth’s fiscal stability affects the $3.7 trillion local-debt market because more than three quarters of U.S. municipal mutual funds hold the securities, which are tax-exempt nationwide.

Puerto Rico Repaid $400 Million Loan With Cash on Hand
Decision Marks Latest Sign of Island’s Travails Funding Itself

Puerto Rico took on the Barclays debt to repay a loan from the GDB. Government officials touted the deal in August as providing “the GDB additional liquidity to meet its responsibility of providing financial support to the government and facilitating economic activity on the island.”

But without affordable interest rates in the bond markets, Puerto Rico has now decided to return those funds, said people familiar with the matter.

The territory announced Monday a 5.3% decline in economic activity in October compared to the year-prior period. The price of Puerto Rico’s 5.75% bond due 2041 has fallen 10% over the past month to 67 cents on the dollar while the yield of the bond has risen to 9% from 8%, according to the Municipal Securities Rulemaking Board.

Worse yet, Puerto Rico economy shrinking by 5.3% in the fiscal year that began July 1. It was the 11th-straight year-over-year drop in October.

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