A bond default by Puerto Rico won’t derail the $3.7 trillion municipal-bond market as the investor base for the commonwealth’s securities has shifted to hedge funds from individuals and mutual funds, according to Tom Metzold, a managing director at National Public Finance Guarantee, which insures some of the debt, Bloomberg News reported yesterday. “Is Puerto Rico the first domino?” Metzold said. “The answer is no.” Negotiations between commonwealth officials and holders of some of Puerto Rico’s $73 billion of bonds fell apart last week. The administration of Governor Alejandro Garcia Padilla has said that it may run out of cash next month. Puerto Rico has about $720 million of bond payments due in December and January. “We’re obviously hoping very much that they don’t want to go nuclear and not pay that,” Metzold said. “We can assist, but we’re looking for a little give and take here so that potentially this can extend for a longer period of time.” Read more.
In related news, insurers of Puerto Rico Electric Power Authority bonds on Wednesday delivered terms for a debt restructuring to the utility, moving it a step closer to an accord with its last key creditor class, Reuters reported yesterday. The insurers have been negotiating to provide a surety bond to serve as a reserve fund to effect a broader debt restructuring with the utility's other creditors. Terms for the surety bond now need to be assessed by PREPA before a final deal can be struck. Insurers have taken center stage in talks to fix PREPA's balance sheet. Facing more than $8 billion in debt, PREPA reached deals in September with bondholders and lenders, who accepted 15 percent payment reductions in exchange for new bonds. Read more.
For further analysis of Puerto Rico’s debt crisis, be sure to visit ABI’s “Puerto Rico in Distress” webpage.
