New austerity and confidence in Puerto Rico

July 18, 2014


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.

Estimating muniland bond recoveries

July 17, 2014

A lot of people in muniland have asked me how much the bonds of Puerto Rico’s electric monopoly Prepa will recover if they are restructured. I’ve thrown out a few numbers, but I don’t have an analytical tool to do a proper cash flow analysis. Chris Foster, managing director of New Oak, has published an open source model (download middle right of page – XLSM file) that allows one to adjust various inputs like fuel prices and electric rates to estimate the level of debt service that Prepa can support.

Puerto Rico’s latest debt effort

July 11, 2014


Puerto Rico

The struggling Puerto Rico government was sideswiped when reports emerged that the island’s Resident Commissioner Pedro Pierluisi had asked the U.S. Congress to consider amending the federal bankruptcy code.

Municipal bond funds will survive a Puerto Rico shakeout

July 9, 2014

Puerto Rico

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 ring fences its public corporation debt

June 26, 2014

Puerto Rico

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.

Puerto Rico’s electricity monopoly is in a downward spiral

June 19, 2014

Puerto Rico’s faltering electricity monopoly PREPA received another blow this week when Standard & Poor’s downgraded the public corporation’s $8.8 billion of revenue debt to BBB- (5.5) from BBB (6) and placed the rating on CreditWatch with negative implications. This leaves PREPA one small step from junk grade in the three major raters.

Puerto Rico’s flat budget

May 20, 2014

Puerto Rico’s plan for a balanced budget for fiscal year 2015 is ambitious. Economic conditions continue to worsen and the commonwealth had a massive tax revenue shortfall in April. Although bondholders were a promised a balanced budget, uncertain tax collections are threatening a smooth transition away from deficit financing. There appears to be a growing political struggle as Puerto Rico attempts to cut $1.5 billion in operating expenses from a $9.6 billion budget.

Puerto Rico stumbles on tax collections

May 12, 2014

Puerto Rico

Puerto Rico’s April tax collections suffered a big collapse. The projections were missed by 27 percent, or $442 million. The data was released last Friday. The April shortfall, caused mostly by reduced corporate income taxes, imperils year-end budget figures. It also jeopardizes the recently proposed fiscal year 2015 budget that was proposed by Puerto Rico Governor Alejandro García Padilla.

Bearish on Puerto Rico

May 8, 2014

Tax-exempt investors have their own special metabolism. They seem not to react to bad news until someone presents them with an old newspaper and commands them to sit down and read it. The facts seem to startle the coupon clippers—why did no one tell them?— whereupon the market goes to pieces. Certainly, such was the case with Puerto Rico last summer (Grant’s, April 5, 2013). The commonwealth didn’t rack up all that debt by itself; a sleepy and guileless bond market was its co-dependent.