As the third quarter comes to a close, it will go down as one of the most turbulent in recent memory for the Commonwealth of Puerto Rico. Civil unrest led to a number of high-profile resignations as well as to three different individuals holding the title of governor in the span of a week.
The current governor, Wanda Vazquez, was appointed following the resignations of Ricardo Rossello and the illegal appointment of Pedro Pierluisi. We hope this experience leads to lower corruption and greater transparency.
In a much-anticipated filing, the Commonwealth released a plan of adjustment that addresses claims against it, the Public Building Authority (PBA), the Employee Retirement System (ERS), as well as $50 billion of pension liabilities. The plan will cut Puerto Rico’s debt by 60%, with recoveries varying depending on issuer and issuance date. The plan also includes an 8.5% pension reduction for certain retirees. This last point is, predictably, deeply unpopular amongst island officials. The plan, even with serious flaws, will form the basis for further negotiations and may finally lead to an exit from bankruptcy.
October is set to be a very important month, as the US Supreme Court will hear oral arguments regarding the manner in which Federal Oversight and Management Board officials were appointed. The court will also decide if decisions they have made will be allowed to stand. Invalidation of their decisions, which we think unlikely, could lead to significant volatility. Insured paper continues to face acceleratory risk, which we manage accordingly.
In addition to Shaun’s commentary here, it’s that time of year when the rest of the Team at Cumberland Advisors provide their Q3 Reviews. We may discuss what we favor, cash positions, warning signs, and what we see as opportunities. Read more Q3 Reviews to learn about the thinking behind our positioning of portfolios and how we execute strategies at this link: https://www.cumber.com/2019-q3-reviews/
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