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Puerto Rico Power Deal With Creditors Lifts Stocks Exposed to Island

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By annca from PixabayPuerto Rico Power Deal With Creditors Lifts Stocks Exposed to Island

Puerto Rico’s power authority sent a jolt through a corner of the U.S. stock market Wednesday as shares in financial stocks exposed to the commonwealth soared after the Puerto Rico Electric Power Authority agreed to a debt-restructuring plan with a group of bondholders.

The deal follows months of negotiations and allays default concerns–capped by a warning from the commonwealth’s Gov. Alejandro Garcia Padilla that Puerto Rico’s debt load is unpayable–and it is a sign of progress for the island.

In afternoon trading, OFG Bancorp–one of PREPA’s creditors–was of the day’s best performers. Shares surged 21% to $8.96, bouncing off of a recent six-year low.

The bank, incorporated in Puerto Rico and one of the commonwealth’s biggest, specializes in auto, commercial and mortgage lending. As of June 30, the lender’s PREPA exposure was about  $200 million and the company holds a $24 million loan loss reserve against that credit line.

“The news on PREPA is certainly a positive for the stock, as it appears they are getting closer to a restructuring” that is “in-line with or better than the marks against OFG’s exposure and what the market was pricing in,” said Jefferies analyst Emlen Harmon.

But Mr. Harmon cautions that shares are likely to remain volatile, given an uncertain economic backdrop with the potential for additional government debt restructuring–and the fact that the PREPA restructuring hasn’t been finalized.

The PREPA agreement “is the first domino in a series that could lead to a resolution for the entire island,” said Sandler O’Neill analyst Alex Twerdahl, noting PREPA’s about $9 billion in debt compares with $72 billion for the whole island.

“The floor has come out” for the Puerto Rico banks, Mr. Twerdahl said, but investors are waiting for clarity  of the overall picture before jumping in deeper, and they and are wary ahead of a few deadlines. The first is Sept. 8, when the commonwealth’s development bank is due to submit a draft restructuring proposal to the governor. The PREPA deal is a good sign, the first that bondholders will make sacrifices, but Mr. Twerdahl cautions that there are payments coming due on debt that is more senior and more expensive.

Of the Puerto Rico banks, Popular Inc. is in the best position, Mr. Twerdahl said. The lender is the island’s biggest by assets and desposits, “and it has the best earnings power.” As such, its shares have fared better than its rivals. Year-to-date, shares are down 12%, versus a 46% decline in OFG shares and a 31% drop in First Bancorp’s stock.

Popular’s stock rose 5.9% to $29.86 midday.

First Bancorp, Puerto Rico’s third-biggest lender by deposits, also has plenty of capital, Mr. Twerdahl said. Shares in that bank gained 10% to $4.05 Wednesday afternoon.

Representatives for OFG, Popular and First Bancorp didn’t respond to requests for comment.

Meanwhile, shares in bond insurers also soared. Assured Guaranty, which has about $744 million in exposure to PREPA, agreed to extend its forbearance agreement with the utility until Sept. 18, according to analysts at MKM Partners. Shares in the company gained 4.4% to $25.90 and erased their year-to-date loss.

Shares in rival MBIA Inc., meanwhile, which has about $1.35 billion in PREPA exposure, jumped 14% to $7.69.

Still, both stocks are well off of levels from which they fell in June, when Mr. Garcia Padilla’s comments roiled markets.

“Until we learn more of the details, it is impossible to say whether the bond insurers will have any loss in any settlement,” said MKM’s Harry Fong. But neither company has any liquidity issues, according to Mr. Fong,
“ and we continue to believe that PREPA and Puerto Rico is manageable for these companies.”

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Published at Wed, 02 Sep 2015 18:42:54 +0000

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Elliott Wave Analysis On 10Year US Notes And USDCAD

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By AJEL from PixabayElliott Wave Analysis On 10Year US Notes And USDCAD


10Year US Notes

USD is on bullish side at the moment against some major currencies after US ISM Non-Manufacturing PMI for Sep came out at 57.1 vs 51.4. 10 year US notes are trading down and now even lower following data. We see 10 year in extended wave three now, testing 161.8% Fib level where market may look for some support, but only temporary for a bounce up into wave 4 that can show up ahead of Friday’s NFP.

10 Year US Notes, 1H

US 10-Year Notes 1-Hour Chart

USDCAD

USDCAD is not moving much for the last few days, but we cannot ingore the fact that market made three waves down from 1.3282 to 1.3047 low, which is a corrective move. It’s zigzag that is pointing back to the highs, maybe into final wave 5) as part of an ending diagonal.

USDCAD, 1H

USD/CAD 1-Hour Chart


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Gregor Horvat

Gregor Horvat
www.ew-forecast.com

Gregor Horvat

Gregor Horvat, based in Slovenia, has been in the forex markets since 2003. He is a technical analyst and individual trader who has worked for Capital Forex Group and TheLFB.com. He also is founder of forex services on www.ew-forecast.com. EW-Forecast.com provides technical analysis of the financial markets, highlighting behavioral patterns based on the Elliott Wave Principle (EWP). Website: http://www.ew-forecast.com/

Copyright © 2013-2016 Gregor Horvat

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Published at Wed, 05 Oct 2016 14:51:28 +0000

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