The restructured Puerto Rico bonds are not rated by ratings agencies so "they have a limited pool of buyers," Hammer noted.Ī chunk of the Puerto Rico restructured COFINA bonds, Series A-1, 5% of 2058, sold last week at 93.423 with a 5.43% yield. "Since then, sales and use taxes have surged ahead of projections while federal government support has accelerated," Nuveen said. The restructured Puerto Rico debt was "downsized to fit revenue levels near the bottom of the Commonwealth's economic cycle," Nuveen, whose High Yield Municipal Bond Fund, the market's largest, recently saw high-profile management turnover. Puerto Rico general obligation and sales tax bonds, known as COFINA, are among the most prominent junk credits and "dominate the high yield municipal indexes," noted Nuveen in an April 17 market report.
Hammer said PIMCO sees opportunities among post-bankrupt Puerto Rico credits, as well as tobacco bonds linked to inflation and prepaid gas bonds, which took a hit during the mid-March banking crisis and have since seen some tightening. "There's not the same desperation to reach for yield," he said.
Part of that is due to weakness in the investment-grade muni market, Appleson said. "There are idiosyncratic opportunities, but the typical primary and secondary high-yield market has all but ground to a halt." "It's a tough environment," Appleson said. "We see a material pick up in yield, but also higher credit quality, and as we approach a potential recession and amid the recent banking sector volatility, I think the higher quality nature of the high-yield market is equally important as simple yield."Īlso like the investment grade market, high-yield primary supply this year has remained moribund as higher rates drive up the cost of capital for borrowers that already may be stressed, investors said.īrightline Florida's unrated $215 million deal in March, which saw an initial offering price of 98 with a 9.006% yield, marked one of the few large speculative deals to come to market.Ī $200 million deal for a retirement community in South Carolina failed to generate enough investor interest to sell earlier this year, according to Jason Appleson, managing director and head of PGIM's Fixed Income's Municipal Bond Team, who oversees the PGIM High Income Muni Fund, with net assets of $711 million.
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