Puerto Rico Governor to Resign, Protesters Warn Successor: ‘You’re Next’

Excerpt from…

Puerto Rico Governor to Resign, Protesters Warn Successor: ‘You’re Next’

By Nick Brown
July 25, 2019

Cumberland-Advisors-Shaun-Burgess-In-The-News
Shaun Burgess of Cumberland Advisors

SAN JUAN (Reuters) – Puerto Ricans danced among the brightly colored houses of San Juan on Thursday after Governor Ricardo Rosselló capitulated to 12 days of protests and announced his resignation, but many in the crowd warned they would reject the person in line to succeed him.

In a sign investors saw Rosselló’s departure as a positive, some of Puerto Rico’s defaulted general obligation bonds traded at their highest prices in three months in the U.S. Municipal Market.

“This kind of helps to eliminate some of the rampant corruption that plagued the commonwealth for decades,” said Shaun Burgess, a portfolio manager at Cumberland Advisors, which holds about $145 million of insured Puerto Rico bonds.

But not all Puerto Ricans were delighted at Rosselló’s ouster.

“He’s taking the fall for a bunch of past governors that put us in this position,” said Ricky Shub, 33. While Shub agreed that it was time for Rosselló to go, he added, “everyone here is right to do what they’re doing, but they should have done it 20 years ago.”

(Reporting by Nick Brown in San Juan, additional reporting by Luis Valentin Ortiz and Marco Bello in San Juan and Karen Pierog in Chicago, writing by Scott Malone and Andrew Hay; editing by Jonathan Oatis, Bernadette Baum and G Crosse)

Read the full article here:  www.usnews.com


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Cumberland Advisors Market Commentary – The People Have Spoken

There comes a breaking point for everything, a moment, an “Arab spring,” when people governed by the callous and corrupt stand up and say enough. For the citizens of Puerto Rico that moment came after the indictment of two former island officials on corruption charges and the release of a private group chat between Governor Ricardo Rosselló and other officials in which their comments were petty, callous, malicious, distasteful, and possibly criminal.

Market Commentary Puerto Rico

Now clearly, corruption isn’t anything new for Puerto Rico. Decades of corruption contributed to the Commonwealth’s record-setting bankruptcy. But in what may be a sign of the times, with sensitivities running high, the comments in those exchanges clearly crossed a line for many and showed a degree of contempt that was inexcusable. Throw in a decades-long recession, control of the Commonwealth government by a federal oversight board, austerity measures (never popular), and continued rebuilding efforts years after a disastrous hurricane season; and it is easy to see how frustrations rose to a boiling point. The island has since bled officials who participated in that group chat, with a number of high-profile resignations.

In a historic moment for the people, protests and other forms of civil unrest have successfully forced the resignation of Governor Rosselló. The people made their voices heard, and the governor was left with few options. I applaud my fellow citizens in the Caribbean. The words we use should matter, in both our civil and political discourse. Governor Rosselló will remain until August 2, when Justice Secretary Wanda Vazquez will take over.

The resignations and chaos have increased political uncertainty and likely prolonged restructuring negotiations. The Federal Oversight and Management Board (FOMB) may have strengthened its position as well. Judge Laura Swain, who is overseeing the island’s bankruptcy proceedings, has imposed a 120-day pause of ongoing litigation to provide time to regain stability and work out a plan to address the suits, as they hinder any conclusion to the broader restructuring effort. The longer-term economic impacts from the unrest are as of yet unknown. An orderly process in filling vacant positions and getting back to the business at hand would minimize longer-term impacts.

In response to the political upheaval and mistrust of Puerto Rican officials, Congressman Sean Duffy, Congresswoman Jenniffer González-Colón, and Senator Rick Scott have asked the president to appoint a federal coordinator to help oversee the continued rebuilding efforts and speed the delivery of federal assistance. We support this move and welcome the transparency the position would bring. More importantly, though, we hope this may mean a brighter future for Puerto Rico. The government should exist to work for the people, not for elected officials or bureaucrats.

Shaun Burgess
Portfolio Manager & Fixed Income Analyst
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentary – 2Q2019 Review: Puerto Rico

The second quarter of 2019 has been a busy one for the Commonwealth of Puerto Rico. Milestones mired in controversy, optimism dampened by frustration, and increasing uncertainty have all been part of the experience.

Market Commentary Puerto Rico

In what may be one of the most significant milestones to date, an agreement was unveiled between the Federal Oversight and Management Board (FOMB) and creditors holding $3 billion of uncontested debt. The $35 billion restructuring agreement encapsulates $18 billion in general-obligation and Commonwealth-guaranteed debt and $16 billion in unsecured creditor claims. Although very tentative and likely to go nowhere, the agreement does provide a starting point in what are sure to be very contentious negotiations. Pushback against the plan has been fierce, with claims of inadequate recoveries and a disparate treatment of creditors. Few apart from the FOMB and the negotiating creditors support the agreement. Recoveries range between 23 to 73 cents on the dollar, depending on the issuing authority and the date debt was issued. One of the most interesting points of the plan is that it provides recoveries on debts the FOMB has claimed are invalid and that it is therefore under no obligation to pay. The catch, though, is that creditors must sign on now or risk a court fight where they may receive nothing. We initially viewed the attempted invalidation of what is now $15 billion of outstanding debt as a negotiating tactic. This restructuring agreement validates that view and is tantamount to forcing creditors to negotiate with a gun to their heads.

On a more positive note, the Puerto Rico Industrial Development Company (PRIDCO) reached an agreement in their Title VI restructuring, and the Title III restructuring of the Puerto Rico Electric Power Authority (PREPA) has seen significant advances, with a restructuring agreement reached between the FOMB and a majority of bondholders, including Assured Guaranty. Whether there is enough support for the plan to move forward is questionable, as MBIA remains a holdout. Any plan will almost certainly have to include MBIA, as it holds a significant portion of the utility’s outstanding debt. An approval by the courts and eventual exit from Title III would be a welcome end to what has been a very long fight.

For all the improving economic metrics and progress we have seen, tremendous uncertainties remain. The US Supreme Court has agreed to hear the FOMB’s case seeking to overturn an earlier appeals court ruling that board members were unconstitutionally appointed and to determine whether any decisions FOMB makes until 15 July can stand. Readers may remember that an appeals court found FOMB members to be federal officials and therefore subject to the Appointments Clause of the US Constitution. The FOMB and federal government seek to have the high court validate their status as territorial officials who are therefore appropriately appointed. An unfavorable outcome would mean that progress becomes murky and mired in litigation. A conclusion to the restructuring of the Commonwealth’s outstanding debt has likely been pushed into 2020.

Because of the risks of acceleration, insured Puerto Rican bonds have lagged the tremendous performance experienced in the broader municipal market. We still believe insured bonds can offer value when you do your homework and pick appropriate structures. We continue to find value opportunistically when supply is available. It remains increasingly important to know what you are buying and to understand the risks of debt acceleration within the insured space.




1Q2019 Review: Puerto Rico

The quarter proved to be a meaningful one for the Commonwealth of Puerto Rico, with the Puerto Rico Sales Tax Financing Corporation (COFINA) finalizing the restructuring of its $17-plus billion in outstanding debt.

Market Commentary Puerto Rico

This stands as the most significant development we have seen in Puerto Rico’s years-long journey, with COFINA representing approximately 24% of the island’s public sector debt. Existing uninsured debt obligations were swapped for new senior lien securities in a process that was messy, complicated, and confusing for many. Bonds insured by Assured Guaranty were accelerated, paying par plus accrued interest to the plan of adjustment’s effective date. As Puerto Rico puts COFINA in its rearview mirror, it now moves on to bigger challenges and unanswered questions.

Next on the agenda for the Federal Oversight and Management Board (FOMB) is the restructuring of the Commonwealth’s general-obligation debt. The FOMB stated in court that it expects to have a plan of adjustment filed by the end of April. It is hard to imagine any proposal being taken seriously by creditors without questions surrounding the validity of debt issued after 2011 being answered. We have written previously about the attempted invalidation of general-obligation debt and the possible implications for the broader municipal market. See http://www.cumber.com/buyer-beware/. It remains to be seen whether this is a strong-arm negotiating tactic or if questions surrounding the debt’s validity will actually get answered in court. Whatever the rationale, the attempted invalidation is something we question, considering that one of the FOMB’s mandates is to regain capital market access.  Who will be left willing to buy the island’s debt at a reasonable yield if the FOMB is ultimately successful?  We do expect this to be a contentious fight, with the outcome shaping not just Puerto Rico’s future but the whole of the municipal market as well.

Overhanging ongoing negotiations are questions regarding the constitutionality of board member appointments to the FOMB. Judge Swain’s prior ruling that board member were properly appointed was overturned February 15th by the US Court of Appeals for the First Circuit. It found that board members were federal officials and thereby not appointed in accordance with the US Constitution’s Appointments Clause. Thankfully, the court chose not to invalidate prior actions by the board or dismiss the Commonwealth’s current Title III proceedings. Although some creditors desired that outcome, the results of such a decision would have been chaotic and meant more time, money, and financial losses for both the Commonwealth and creditors. The federal government now has 90 days to appoint board members legally. The FOMB has chosen to take the question to the Supreme Court, and any action by the federal government before that happens is unlikely.

Assuming the Supreme Court chooses to take the case on, what side it takes remains questionable. If the court sides with the FOMB and determines its members are territorial officials, then things move forward with only a small delay. If the court decides they are federal officials, it makes thing far more complicated. The federal government would have very little time to either confirm existing members or appoint new ones. Considering the high degree of dysfunction at which our elected officials operate, we don’t expect anything to be done until the eleventh hour. Hopefully Washington proves us wrong, but we’re not holding our breath.

We still believe carefully selected insured paper can offer tremendous value for clients and continue to take advantage of the space. However, with the acceleration of insured COFINA debt, we are being cautious as we put money to work. We do not recommend blindly buying insured paper without doing the necessary research into each issue and authority.

Shaun Burgess
Portfolio Manager & Fixed Income Analyst
Email | Bio

___________________________________________________________

Cumberland Advisors invites you to our third annual Financial Literacy Day, to be held April 11, 2019, from 8:30 AM to 4 PM at the Selby Auditorium of the University of South Florida Sarasota-Manatee.
Our focus is “Financial Markets and the Economy,” featuring:
Panels
• The Stock Market
• Health Hunger and Philanthropy
• How the World Looks to Me – A Global Economic Outlook
Special Presentations
• A Conversation with Susan Harper, Canada’s Consul Gen in Fla, on Trade/World Affairs
• Keynote by Gretchen Morgenson, Senior Special Writer in the Investigations Unit at The Wall Street Journal and Former Business and Financial Editor for the New York Times.
We welcome and encourage the participation of our friends, colleagues, and clients. The cost is only $50 to register, and includes coffee, pastries, catered lunch, and a light reception with Gretchen Morgenson. Please reserve your spot soon – we expect a full auditorium. Learn more: https://www.cumber.com/financial-literacy-day/



Investors grab hefty yields in Illinois and Chicago bond sales

Excerpt below from “Investors grab hefty yields in Illinois and Chicago bond sales”
By Karen Pierog, Reuters, March 26

Cumberland-Advisors-Shaun-Burgess-In-The-News
Shaun Burgess of Cumberland Advisors

CHICAGO – Yield-hungry investors on Tuesday snapped up more than $1.1 billion of general obligation bonds offered by Illinois and Chicago, two of the U.S. municipal market’s most financially troubled issuers.

While the state and its largest city continued to pay a high price for their fiscal woes, their deals benefited from low supply in the $3.8 trillion market and “a ton of cash” looking for bonds to buy, according to Greg Saulnier, a Municipal Market Data (MMD) analyst.

“Yields are so low that some guys are willing to take a risk for the yield grab,” he said.

Shaun Burgess, a portfolio manager at Cumberland Advisors, agreed. “Clearly, demand is discounting some of the credit risks associated with these issuers,” he said. MMD narrowed so-called credit spreads for Illinois, the lowest-rated U.S. state, at a notch or two above junk, due to its huge unfunded pension liability and chronic structural budget deficit, in the wake of a $440 million bond sale. The state’s spreads remain the widest among U.S. states.

Chicago, which is also struggling with pension funding and deficits, increased the size of its bond offering to nearly $728 million and moved pricing up by a day. There was enough demand to allow underwriters to lower yields by 5 basis points in most maturities through a repricing.

Continue reading the full article at www.reuters.com




Buyer Beware

Cumberland Advisors - Shaun Burgess - Portfolio Manager & Fixed Income Analyst

In a move that caught many observers by surprise, the Federal Oversight and Management Board (FOMB), which was created to oversee the restructuring of the Commonwealth of Puerto Rico, has requested that Judge Swain invalidate more than $6 billion of the territory’s debt. The move would affect uninsured general-obligation bonds issued in 2012 and after. The rationale for the FOMB’s argument is that the debt was issued in violation of the island’s constitutional debt limit. While others have called for this move previously, the FOMB has never vocally supported this extreme action until now. The bonds in question were apparently issued in adherence to practices used in prior debt issuances, and their validity came into question only following the island’s historic bankruptcy.

The move raises many questions. How did the island access capital markets if the debt violated the debt limit? Can the debt be invalidated if it was in compliance with practices used at the time and in prior debt issuances? If the calculations that were used were known to be incorrect, is there a case for fraud? Is there more debt the island may seek to invalidate? Is the move in line with the FOMB’s mandate of putting the island on a path to regain market access? How does this development affect other municipalities that may have used creative methods to skirt statutory debt limits? The biggest question, though, is who would be held accountable? It is easy to say that this problem affects only “soulless” hedge funds, but that is not true, especially with regard to bonds issued prior to 2012, when the general-obligation pledge was still rated investment-grade. And in any case, hedge funds bought the Commonwealth’s bonds based on the promise to be repaid. Being forced to take a haircut because of the inability to pay is understandable, but to get nothing because the calculations used were incorrect or inappropriate would be hard to stomach.

Whether Judge Swain agrees to the FOMB’s request remains to be seen, but the attempt raises serious questions about the direction of the FOMB and the broader implications for the $3 trillion municipal bond market.

Shaun Burgess
Portfolio Manager & Fixed Income Analyst
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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4Q2018 Review: Puerto Rico Insured Bond

Cumberland Advisors - Shaun Burgess - Portfolio Manager & Fixed Income Analyst

It has been a busy quarter for the Commonwealth of Puerto Rico. Milestones included a conclusion to the Title VI restructuring of the Government Development Bank (GDB) and a plan for the restructuring of the Puerto Rico Sales Tax Financing Corporation’s (COFINA), as well as the continued rebuilding from the damages wrought by Hurricane Maria and a myriad of other developments. The conclusion of the GDB’s restructuring and the plan of adjustment for COFINA represent the most significant developments we have seen thus far in the Commonwealth’s bankruptcy saga.

The restructuring of COFINA’s debt stands as one of the most significant developments to date and will rank among the largest municipal restructurings in history, at a staggering $17.6 billion. The terms of the plan include COFINA and Commonwealth bondholders splitting sales and use tax revenues to the tune of 53.65% and 46.35%, respectively. Senior bondholders are set to receive 93 and subordinate bondholders 56 cents on the dollar, and both will exchange existing bonds for new senior lien securities backed by their respective portion of the 5.5% sales and use tax. Although the plan obviously offers considerably less for subordinate bondholders than it does for senior debt holders, the proposed workout is an equitable resolution in Cumberland’s opinion for both COFINA and Commonwealth creditors and is less likely to face significant legal challenges that could prolong the agency’s restructuring. Judge Swain’s approval of the plan’s disclosure initiated a creditor support voting process which will culminate in a confirmation hearing set for January 16, 2019, with public commentary included in the proceedings. We look forward to this date as it represents another pivotal moment in the restructuring process. Execution risks remain, as further progress will depend on the outcome of creditor votes as well as Judge Swain’s approval.

A milestone no less important was the closure of the Commonwealth’s first court-authorized workout – the Title VI restructuring of the GDB’s approximately $4 billion of debt. Although a small sum in the totality of the burden facing the Commonwealth, the restructuring still represents a significant step forward. It stands as the only Title VI restructuring thus far and the first of many restructurings we will see in the coming months and years. Bondholders received 55 cents on the dollar in new securities paying a coupon of 7.50% and maturing in 2040. Even with the GDB’s debt restructured, the risk of nonpayment at some point in the future remains high; and the market price on the newly issued securities reflects as much, with a valuation currently in the high $60s. The restructuring of the GDB offers an important lesson to bondholders, in that even securities received from a restructuring can trade to levels which could worsen initial “haircuts”.

Looking ahead, 2019 promises to be an even busier year for the Commonwealth, with the restructuring of Commonwealth-guaranteed debt and numerous agencies including the Puerto Rico Highway and Transportation Authority (PRHTA), the Puerto Rico Aqueduct and Sewer Authority (PRASA), and the Puerto Rico Electric Power Authority (PREPA) on the agenda, along with a number of outstanding legal challenges and unfunded pension liabilities still to address. We expect the focus of the Financial Oversight and Management Board (FOMB) to remain the restructuring of COFINA and Commonwealth-guaranteed obligations as these represent the largest portion of the Commonwealth’s total outstanding debt, not including unfunded pension obligations, and smaller easier to restructure agencies.

We have hit some important milestones in 2018 and think that 2019 will bring more. We still believe that carefully selected insured paper can offer terrific value for clients at tax-exempt yields north of 4%. We do not recommend blindly buying insured paper but instead carefully researching individual issues.

Shaun Burgess
Portfolio Manager & Fixed Income Analyst
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Puerto Rico Oversight Board, Rosselló tussle over Christmas bonus

Excerpt below from “Puerto Rico Oversight Board, Rosselló tussle over Christmas bonus”
By Robert Slavin, November 15 2018, 3:27pm EST

Cumberland-Advisors-Shaun-Burgess-In-The-News
Shaun Burgess of Cumberland Advisors

Puerto Rico’s Christmas bonus is again under the spotlight as the Oversight Board pressures Gov. Ricardo Rosselló to identify spending reductions to offset the cost of his plan to pay the annual benefit.

The clash between the board and Rosselló comes more than two years after Puerto Rico stopped paying its general obligation debt. Since July 2016 Puerto Rico has defaulted on most of its other bonds. The continuation of the Christmas bonus has been a sore point for some bondholders.

Puerto Rico’s government must live within its budget regardless of its cash balances, Oversight Board Executive Director Natalie Jaresko said in her letter. A failure to cut the bonus, other payroll, or other operating spending sufficiently before the end of the current fiscal year may “imperil… the commonwealth’s ability to make payroll for its employees.”

Cumberland Advisors Portfolio Manager Shaun Burgess said, “It doesn’t surprise me that the commonwealth is moving ahead with paying the bonuses. I suspect the commonwealth’s elected officials would have done whatever is necessary to pay them since not doing so would have been a deeply unpopular move.” Cumberland owns insured Puerto Rico bonds.

The Puerto Rico Oversight, Management, and Economic Stability Act, which governs the board’s capabilities, says that the board is to review the compliance of the local government’s actual spending with the board’s approved budget. If the board finds that it is inconsistent, the act says the board is to inquire with the government for more information about the spending and future spending.

Subscription Required: read the full article at www.bondbuyer.com




Puerto Rico’s revised fiscal plan shows surplus; bonds rally

Puerto Rico’s revised fiscal plan shows surplus; bonds rally

(Reporting By Luis Valentin Ortiz in San Juan; Editing by Daniel Bases and Cynthia Osterman)

Cumberland-Advisors-Shaun-Burgess-In-The-News
Shaun Burgess of Cumberland Advisors

Excerpt below:

SAN JUAN, Oct 22 (Reuters) – Puerto Rico’s federally appointed financial oversight board issued a new version of the U.S. commonwealth’s five-year fiscal plan on Monday.

“A revised fiscal (plan) that shows more money for creditors and recognizes Puerto Rico’s ability to pay – that is driving GOs higher… There is still a lot of execution risk as the fiscal plan relies on some assumptions and policies being put in place,” said Shaun Burgess, a portfolio manager at Cumberland Advisors in Sarasota, Florida.

“This was definitely a surprise and it is an admission that they can cover debt service and have a surplus. Definitely hurts the commonwealth narrative that they are broke when you see they can pay debt service and have a surplus of many millions of dollars,” he added.

Puerto Rico filed on Friday its first plan of adjustment, which would tackle roughly $16 billion in COFINA debt. Final court approval was expected in early 2019.

Read the full article here: CNBC.com




The Ball Is Rolling

August has brought welcome news for the Commonwealth of Puerto Rico and for creditors eager to see a resolution to the bankruptcy process that started more than two years ago with the passage of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA).

Market Commentary Puerto RicoThere is now a restructuring agreement for Sales Tax (COFINA) bondholders and a court decision validating the powers of the Fiscal Oversight and Management Board (FOMB), as well as a restructuring proposal for the Puerto Rico Electric Power Authority (PREPA), all of which offer reason for optimism. These developments join the restructuring of the Government Development Bank (GDB), along with better-than-expected economic conditions.

When observers look back at the bankruptcy of Puerto Rico, they will point to the restructuring of COFINA as a major milestone. The formal agreement between the FOMB, the government of Puerto Rico, and both senior and junior creditors as well as monoline insurers marks a momentous step forward. It follows months of court-supervised mediation efforts. As part of the arrangement, COFINA bondholders have agreed to give up a portion of sales tax revenues to the Commonwealth: 53.65% of the Pledged Sales Tax Base Amount on a “first-dollar” basis would back new COFINA securities, while 46.35% would flow through to the Commonwealth. The disclosed term would see existing bondholders receive new senior lien bonds secured by the 5.50% sales-and-use tax (SUT), with recoveries of 93% for senior bondholders and 56% for subordinate bondholders. The accrued COFINA interest currently held in escrow will go to COFINA bondholders, with final disbursements between senior and junior bondholders still to be determined. In light of the circumstances, we believe this is a good outcome for bondholders as well as the Commonwealth, as the deal provides approximately $17.5 billion in debt-service savings. Execution risks do remain, and terms can change, so this is still far from a done deal.

In addition to the COFINA agreement there was Judge Swain’s August 7th decision affirming the authority of the FOMB over the Commonwealth’s budget and fiscal plan. The Commonwealth had challenged the powers of the FOMB for a number of reasons, including budgetary actions. As the judge wrote in her decision, “The power bestowed on the oversight board by Section 205(b)(1)(K) of PROMESA allows the oversight board to make binding policy choices for the Commonwealth, notwithstanding the governor’s rejection of Section 205 recommendations.” She held that while the board has the power to implement a budget or policy, it does not have the “power to affirmatively legislate.” The decision is a blow to the Commonwealth that will likely be challenged on appeal. The decision is significant, as it affirms the FOMB’s powers and will hopefully clear the road to the restructuring of the Commonwealth’s general-obligation debt at some point in the future.

Following congressional hearings and well-publicized turmoil involving PREPA’s top post, a tentative deal between the Commonwealth, the FOMB, and creditors holding roughly $3 billion of PREPA debt was also announced. Under the terms, creditors would receive two series of bonds. The first tranche would provide a recovery of 67.5%, and the second tranche would be a “hope” note at a recovery of 10%. Combined, this would be a total recovery of 77.5%, assuming the “hope” notes pay off. While not the 85% recovery outlined by the previous restructuring agreement that the FOMB scuttled, it is at least in the parking lot if not the ballpark. The terms have not been sufficient to entice monoline insurers on board, so we will wait to see how the situation develops.

Prices of both insured and uninsured debt have risen in accordance with these developments. Uninsured debt, specifically that of COFINA, has seen some of the most dramatic price increases. We still believe carefully selected insured paper offers value, and we continue to take advantage. As with most things in Puerto Rico, though, we view new developments with a grain of salt. Execution risks remain, but at least the ball is rolling. The path is now a little clearer, and the end is a little closer, but there is still a long journey ahead.

 

Shaun Burgess
Portfolio Manager & Fixed Income Analyst
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.