The New York Times’ Michael Corkery reports Morgan Stanley is passing the till around to private equity firms and hedge funds to raise $US2 billion to bailout debt-riddled Puerto Rico.
The island nation could pay a coupon of up to 10% for the favour, Corkery writes. The yield on Puerto Rican 30-year bonds are now at 8.6% per cent, according to Thomson Reuters Municipal Market Data. The average U.S. muni bond is about 4%.
Still, they may take the deal. Puerto Rico’s debt to personal income ratio is 83%, compared with 6% for California, Illinois and New York. The island was effectively locked out of credit markets last quarter after a large bond sell-off, though Reuters reported earlier this month they were planning a debt sale this or next month.
Its economy has been in and out of recession since 2006, when an earlier fiscal crunch caused the city of San Juan to shut down. That was also the same year federal tax breaks for an experiment designed to pump up the island’s manufacturing sector expired. Several of its banks had to be bailed out by the U.S. government in the wake of the recession, and the country hasn’t been the same since. The island’s labour force participation hovers around 40%, and the public sector accounts for 20% of all employment.
The Morgan Stanley deal would avoid an intervention from Washington, the prospect of which was raised this fall.
Morgan Stanley declined to comment.