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Puerto Rico muni bonds


muscleman

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http://www.bloomberg.com/news/2013-12-12/puerto-rico-may-be-cut-to-junk-by-moody-s-as-economy-weakens.html

I think this will become very interesting if the downgrade and forced selling happens.

Puerto Rico doesn't seem to have an insolvency issue, but just a liquidity issue, so I think if they can bailed out by some cheap bridge financing, it will be good and the "crisis" will be over.

I can't find that 2041 GO bond symbol in fidelity. Does anyone know?

If the forced selling does happen and it goes much lower than 67, I would be quite interested. :)

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I've got no idea but there was a blog I used to read called stableboy selections that did a few posts on puerto rican bonds.  If I remember right he was of the opinion that the gov wouldn't be able to  pay.

 

I found a few posts there but I don't think those make any sense at all. There is no detail about his analysis and his view. Just a boy crying wolf. :)

What I see is that Puerto Rico annual budget deficit has gone from 3.3 bn in 2009 to 0.8 bn in 2013, and continues to go down.

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Yeah I have no idea on governent bonds.  That's why I don't read the blog anymore - his stuff just isn't up my alley.  I'd rather read simple writeups on straight up cheap stocks like PDRX.  But I figured I might as well pass it along in case it meant something to you.

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Additional information:

 

http://www.businessweek.com/articles/2013-10-31/puerto-ricos-borrowing-binge-could-rock-the-muni-bond-market

 

I find it an interesting topic and will try to devote a couple of hours, thanks

 

Yeah. It is written in PR's constitution that public debt must be paid in full at first before other liabilities. So this means if there is really a need to restructure, pensions will likely get hurt before the GO bonds are even considered to get a cut.

But if Moody downgrade does happen, there will be lots of forced selling, and price could become very cheap. :)

Still, did anyone find that 2041 GO bond that bloomberg was talking about? I have no idea which bond it is. I can't find it in fidelity.

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  • 1 month later...

 

I think Puerto Rico's situation is more like Italy and Spain, not Greece. They have done a good job, and it is working better than they expected.

With that said, I welcome anyone who understand this issue to share their thoughts, and I really appreciate that.

I remember in 2011, the issues about Italy and Spain about to die has been on the media all day long. Then all of a sudden, they no longer say anything about it anymore.

What is the "crsis"? It is the boy who cried wolf meets the analysis who made a bearish call, hoping to gain some popularity.

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Mark Palmer@ BTIG actually sent out  a note yesterday about this. BTIG seems to think the Jones Day event is a "business developemtn" event at best.

 

The article states that “creditors to Puerto Rico are meeting in New York on Thursday with lawyers and debt restructuring specialists as the territory appears increasingly likely to default on its $70bn in public sector debt and an additional $40bn of unfunded pension liabilities, these specialists say.”

 

In our view, a meeting between Puerto Rico’s creditors with lawyers and debt restructuring specialists will have just as much impact on the likelihood that the Commonwealth will default as the Mets fans’ meeting with baseball writers would have on their prospects of winning the title: none.

 

 

Read more: http://www.btigresearch.com/2014/01/15/mbia-assured-guaranty-ambac-ft-headline-on-puerto-rico-creditor-meeting-borders-on-journalistic-malpractice/#ixzz2qb9xx44K

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  • 2 weeks later...

"In a letter to investors on Tuesday, Third Point, the hedge fund run by Daniel S. Loeb, said Puerto Rico bonds were among his firm’s top five losing investments in the fourth quarter."

http://dealbook.nytimes.com/2014/01/21/2-billion-deal-in-works-for-puerto-rico/?_php=true&_type=blogs&ref=business&_r=0

 

So the major concerns are just liquidity. They don't have the solvency problem. Just like Italy and Spain debt problems in 2011. :)

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How are you investing? Through Popular bank?

 

Are you buying bonds directly?

 

Dan Leob bought a bunch of bonds and he is underwater now.

I think buying the bonds will be interesting, but I haven't bought any yet. I have MBI, AGO and BPOP that have exposure to this play, but I  think it is ok to buy bonds. PR constitution says payments must go to bond holders first before going to other liabilities like pension. Not to say that there is only liquidity issue, not solvency issue. So I don't think a default will happen.

Morgan Stanley put up a $2 bn refinancing package with 10% coupon. While the term is not great, it at least provides liquidity for the next few years, so there is no liquidity issue either.

I think I would wait a bit longer before buying the bonds, because PR government will only take Morgan Stanley's offer at the last moment before Moody decide to downgrade them to junk. Before that, there will be some more scary news going on.

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  • 2 months later...

muscleman- not sure if you're still looking for this, but i did not see it:

 

Puerto Rico Commonwealth PUB IMPT-SER A 5.750 Jul-01-2041

CUSIP 74514LYW1

 

I have to imagine that issue is referenced in articles often because it appears to have much better liquidity.

 

Why not call your broker?

I am not long PR bonds because after the expected downgrade to junk, the bond did not sell off as I expected, which means it is bullish.

I am long BPOP. :)

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