Puerto Rico’s bankruptcy created some debt securities that don’t pay interest, but still managed to deliver an almost $400 million windfall to investors this month, Bloomberg News reported. Called contingent-value instruments, or CVIs, they’re what investors received in March 2022 as part of a debt restructuring deal that cut $22 billion of the commonwealth’s outstanding bonds down to $7.4 billion. The CVIs are taxable securities that resemble zero-coupon bonds — except they do offer investors a chance to collect interest-like payments before the debt expires. This is because they include a provision that calls for holders to receive a payout in November if sales-tax collections for the prior fiscal year surpass projections. So far they have: CVI holders received $362 million in 2022 and $388.7 million on Nov. 1. Some bondholders view the CVIs as a long-term investment. But others see them as trading vehicles, looking to take advantage of price movements because their longer duration makes them more sensitive to interest rates and susceptible to swings, said Daniel Solender, head of municipal debt at Lord Abbett & Co, which holds some of Puerto Rico’s CVIs.
