Five months after Puerto Rico officials talked publicly to market participants, they held an investor call on Thursday with over 2,000 people. The call was captured by Storify. Puerto Rico’s previous call in February rallied market enthusiasm for a $3.5 billion general obligation bond offering that was priced on March 8. The March deal, the largest speculative grade bond deal ever done in muniland, replenished the coffers of the fiscally debilitated island.
Why is it so expensive to trade municipal bonds? We finally have some answers from a long awaited MSRB report on trading in the opaque muni bond market. The study was conducted by former SEC Director of Enforcement Erik Sirri. It maps where bonds go before they settle into retail customer accounts. Every time the bonds change hands, the price is marked higher. In the dark muni market, nobody sees this happening.
Barron’s had a recent story, “Puerto Rico’s Debt Woes Could Spread,” that says, “As mid-year statements go out, muni-fund redemptions could force selling of other credits.” Barron’s author Randall Forsyth wrote:
Puerto Rico agencies showered with credit downgrades
Moody’s Analytics: PR’s risk is highest of all 84 sovereign entities we track
Puerto Rico House and Senate pass balanced 2015 $ 9.56 billion budget
Puerto Rico’s May Economic Activity Index declines 1.1 percent year over year
Treasury Melba Acosta Febo signals Puerto Rico’s intent to restructure
Prepa is in dire dire straits – language from PR’s financial filings
Crunch time: Waiting for Prepa to make its $204 interest payment due July 1
Puerto Rico finally publishes their fiscal year 2013 financials
Nuveen on Prepa default signalling more general defaults
Creole Bankruptcy and energy reform are pieces of the same puzzle
Northern Mariana Islands bankruptcy filing may be Puerto Rico template
Senate President signs legislation to pay interest on general obligation bonds
Prepa bonds hit hard
Bellweather Puerto Rico general obligation bonds weakening
The news flow from Puerto Rico has become a whirling inferno since the government passed legislation last week to allow some of the Commonwealth’s public corporations to default.
In a dazzling effort, Puerto Rico Governor Alejandro Garcia Padilla presented legislation to restructure the debt of several public corporations. Both the Puerto Rico Senate and House approved the measure and pushed it to conference where statutes require that it be reconciled by the end of the legislative session on June 30. Seldom have financial markets seen such an elegantly choreographed approach to haircutting sovereign debt.
I had a chat with Robert DiMella, a senior managing director of fixed income manager MacKay Shields. DiMella brought MacKay Shields to New York Life in 2009 with $400 million of assets under management. He now manages close to $10 billion there. Retail investors typically buy and hold municipal bonds, but mutual fund managers like DiMella get paid to move from overvalued to undervalued bonds and take advantage of market mispricings. I had a peek into his operation.