Puerto Rico must keep paying pension bondholders while the judge overseeing the island’s bankruptcy case decides whether the investors also have a right to retirement contributions made to government workers, Bloomberg News reported. Puerto Rico, which has about $3 billion of pension bonds outstanding, owes about $13.9 million each month in interest to holders of the debt. It’s one of the few commonwealth securities that’s paying interest to investors. The commonwealth sold the bonds in 2008 to help boost funding levels for its retirement system. That program is the worst-funded among U.S. states and territories, according to Moody’s Investors Service, and running out of cash. Its unfunded pension liability is approaching $50 billion. Bondholders include affiliates of Oaktree Capital Management LP, Altair Global Credit Opportunities Fund and Puerto Rico AAA Portfolio Bond Fund Inc. Pension bonds maturing in 2038 traded Wednesday at an average price of 25.5 cents on the dollar, down from 38.1 cents on Sept. 18. Hurricane Maria struck the island on Sept. 20. Read more.
In related news, Hedge funds are increasingly betting on whether bond insurer MBIA Inc. can survive heavy losses expected from Puerto Rico’s bankruptcy, the Wall Street Journal reported. Short sellers have borrowed about 40 percent of the firm’s stock since September, wagering that it will drop, while value investors Fine Capital Partners L.P. and EJF Capital LLC have taken the opposite side, buying millions of MBIA shares. Credit hedge funds like Mill Hill Capital LLC have bought credit default swaps, or CDSs, that gain value as the probability of an MBIA default rises. By one measure, MBIA has done less to prepare for Puerto Rico-related losses than its competitors. MBIA’s most recently reported loss reserves amount to about 10 percent of its exposure to Puerto Rico, compared with about 20 percent for Assured Guaranty Ltd. and about 40 percent for Ambac Financial Group Inc., according to data from S&P Global Market Intelligence. Read more. (Subscription required.)
