Puerto Rico Bonds Seen Yielding 8.625%-8.875% With 8% Coupon
Puerto Rico is expected to sell at least $3 billion in debt Tuesday in what would be the U.S. commonwealth's largest bond sale, an important step in the island's efforts to bolster its finances.

Bankers led by Barclays PLC, Morgan Stanley MS -0.12% and RBC Capital Markets closed the order period Monday for investors, who were expected to be largely institutional managers given the minimum order size of $100,000. The bond sale was announced last week at $3 billion with a final maturity of 2035.

Orders were strong, said people familiar with the deal, which means the size of the sale could increase.
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The offering will be Puerto Rico's first debt offering since August and its largest general- obligation deal, which is backed by the island's pledge to use tax revenue to repay bondholders. Last week, investors said that dealers saw as much as $10 billion in demand for the deal, though it wasn't clear whether the orders were based on expectations of higher yields.

The rally is triggering sell signals for some investors who bought Puerto Rico debt as it plunged to distressed levels last summer. Among potential sellers is David Tawil, co-founder of hedge fund Maglan Capital, which bought some Puerto Rico bonds in August.

"It doesn't pay for us to hang in there further," Mr. Tawil said. "There is not a lot of upside from here" for the territory's bond prices, he said.
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Puerto Rico has been racing to fix its fiscal deficit by overhauling pensions, cutting spending and raising taxes. Gov. Alejandro Garcia Padilla has cut the current year's projected deficit by $170 million to $650 million and said he would introduce the island's first balanced budget in many years for fiscal 2014-2015.

But the territory's finances have been challenged for years, raising concerns among some investors. Puerto Rico has lost more than 10% of its nonfarm employment since its recession began in 2006, according to Fitch Ratings. Its unemployment rate was 15.5% in December. Meantime, the island's Economic Activity Index, which measures general economic activity, was down on a year-over- year basis every month of 2013, the rating firm said.