As we reflect on a tumultuous fourth quarter for the Commonwealth of Puerto Rico, early progress in 2019 in the island’s bankruptcy brought optimism, however that optimism has since turned to frustration as headway has slowed, uncertainty has increased, and questions remain unanswered.
October saw the release of a plan of adjustment to restructure the island’s public debt and pension liabilities. Though opposed by many creditors, the plan did provide a basis and a structure for court-ordered negotiations. We did not expect negotiations to go anywhere, however, unless questions regarding the validity of certain debts were answered. Our expectations were confirmed as the negotiations have yielded little except a recommendation from mediators for litigation regarding debt validity to move forward.
One of the most pivotal questions to date will be answered sometime in 2020. Following oral arguments, the Supreme Court is expected to rule regarding whether Puerto Rico’s FOMB officials are territorial or federal representatives and therefore whether they were appointed appropriately. What the justices decide remains to be seen, but the ramifications of their decision could be enormous.
2020 is set to be a crucial year for the Commonwealth, as we may finally get much-needed answers. Although this year did bring us closer to a conclusion, an exit from bankruptcy remains a long way off.
Our Puerto Rico Insured Bond strategy continues to look for opportunities in the space although we tread very carefully due to acceleration risks.
Shaun Burgess
Portfolio Manager & Fixed Income Analyst
Email | Bio
In addition to Shaun's commentary here, it’s that time of year when the rest of the Team at Cumberland Advisors provide their Q4 Reviews.
We may discuss what we favor, cash positions, warning signs, and what we see as opportunities. Read more Q4 Reviews to learn about the thinking behind our positioning of portfolios and how we execute strategies at this link: https://www.cumber.com/2019-q4-reviews/
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