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How can Puerto Rico bonds have AA rating?


Regarding your article, (Bondholders After Puerto Rico’s Bankruptcy Filing), I noticed you are still selling Puerto Rico bonds with an AA listing.

Is there some mysterious way these bonds are safer than the ones I own?

How do they get such a great rating?

E.W., Florida


James A. Klotz responds:

There is really no mystery regarding the AA rating on the Puerto Rico bonds to which you refer.

These bonds are insured by Assured Guaranty Municipal Corp. (AGM), Build America Mutual Assurance Company (BAM) or National Public Finance Guarantee Corp. (Nat’l) for the timely payment of principal and interest.

They carry ratings of AA, AA, and AA-, respectively.

Investors find them attractive as they yield more than other comparable insured securities because of the underlying Puerto Rico credit.

The AA rating by Standard & Poor’s reflects its opinion that these insurance companies have the claims-paying ability to warrant this lofty rating.

May 17, 2017

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