• Muni Nation

    Game Changer?

    Jim Colby, Portfolio Manager
    June 27, 2014

    According to The New York Times, "[A] new law [proposed by the government of Puerto Rico] intends to create an organized process through which some of its debt can be cut or reduced. It would apply to at least $22 billion owed by public corporations including the electric authority, the aqueduct and sewer authority, and the highway authority. The legislation does not apply to Puerto Rico's general obligation debt, which officials say carries constitutional protections that bondholders must be repaid."

    Yesterday, on that news, the debt of those authorities saw the bid-side of the market sink 3-5 points ($ price), depending upon the size of the block being offered, while the recently issued Puerto Rico general obligation (GO) 8's (8% coupon bonds, issued in March 2014 and maturing on July 1, 2035), which are very actively quoted, rose some 3 points ($ price) to $88.25. This morning these bonds were being quoted from $88.625 – $89.125.

    After many months of the Commonwealth fending off suggestions that it was going down a path toward some sort of restructuring, this news could seem to be a game changer. We now must wait to see what the Legislature does with the proposal and if the Puerto Rico courts might have a say in the outcome. It could also be fair to say that this is evolving out of an environment that is challenging economically as well as politically.



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