Puerto Rico Bonds Complete Junk Or Not?

Hedge fund manager Kyle Bass added to the headline risk surrounding Puerto Rico when he appeared on CNBC this morning to give his opinion on the embattled Puerto Rico bond market.

Bass sees Puerto Rico has huge pension liabilities, is mired in a population decline and pays no federal income tax. Yet they remain a destination for billions of dollars of U.S. taxpayer and investor cash each year.

Here is a real time list of Puerto Rico bonds that are available at fire sale prices, defined as trading at half or less than of par value, in relatively high volume (at least five trades per day) at prices between $0 and $50.

“You look at their finances and you say ‘I have no clue how this can exist for very much longer,’” Bass said. He noted that Moody’s downgraded Puerto Rico just under a year ago to barely above junk status, when Puerto Rico’s borrowing rates were about half what they are now, but that Moody’s recently reaffirmed those ratings rather than cutting them further to junk. “Clearly they are completely junk,” Bass said.

Bass even compared Puerto Rico to Greece in 2009 or 2010, saying any municipality or sovereign entity is “typically asset-heavy, but how many times have you seen a sovereign entity cede their sovereignty, sell an asset to pay an external creditor? Doesn’t happen.”

Moody’s downgraded Puerto Rico debt just under a year ago to a level just above junk status, since then Puerto Rico’s borrowing rates have nearly doubled. But Moody’s recently reaffirmed those ratings rather than cutting them further. “Clearly they are completely junk,” Bass said. –