Washington holds key for Puerto Rico bondholders
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Coller Capital collects $9 billion with latest secondaries fund
      Directional signs respresenting types of traditional and alternative investments
      Setter: Alternative secondary deals drop 27.7% in 2020
      Kennedy Lewis raises $2.1 billion for latest opportunistic credit fund
      Emma Davies
      Octopus Ventures chooses co-CEO
    • Jason Schwarz, chief operating officer of Wilshire,
      New owners have big plans for future of Wilshire
      Amy Hsiang
      Meketa picks new public markets manager research director
      Will Martindale
      Cardano Group chooses group head of sustainability
      Meketa hires first chief marketing officer
    • Multiemployer pension plans could soon see relief
      Yellen calls for more COVID relief, retirement access
      A healthcare worker provides care for a COVID-19 patient in the intensive care unit at the Saint Joseph hospital in Marseille, France, on Nov. 20, 2020.
      World must act to strengthen against future pandemics – report
      New York State Common challenges Tyson’s dual-share stock structure
    • Kenneth J. Munro III
      Empower names new national sales director
      Fidelity cuts target-date asset threshold for lower fees
      DCIIA looks to spark engagement with plan sponsor institute
      Ascensus, Empower acquire Truist record-keeping business
    • Ontario Teachers commit to net zero emissions by 2050
      LaSalle Investment Management taps 2 for new ESG roles
      Sovereign credit ratings vulnerable to ESG risks — Moody’s
      JPMAM names head of investment stewardship, Asia ex-Japan
    • Blackstone holiday video
      Blackstone would like to show you how things are done around the office
      Galina Churkina
      Building research earns honor from Aquila Capital
      MacArthur Foundation invests in women’s safe housing fund
      CAIA’s expansion to online exams yields big results
    • Shanghai skyline
      Global hedge funds struggle even in a more open China market
      The Sun Hung Kai Properties Ltd. logo is displayed on the Sun Hung Kai Centre building in Hong Kong on Sept. 13, 2018
      SHK spins out East Point Asset Management
      Man holding a business card with Hedge Fund written on it
      Hedge funds chalk up decade’s best returns in 2020 – HFR
      New hedge fund launches surpass liquidations in third quarter
    • Famed value investor and co-founder of Boston-based GMO Jeremy Grantham
      Grantham warns of Biden stimulus further inflating epic bubble
      Jason Schwarz, chief operating officer of Wilshire,
      New owners have big plans for future of Wilshire
      Ontario Teachers commit to net zero emissions by 2050
    • Marques Benton
      Loomis Sayles chooses first chief diversity officer
      Standard Life Aberdeen CEO Stephen Bird
      Standard Life Aberdeen CEO: Some staff won’t get bonuses
      Nuveen sells holdings in sanctioned Chinese stocks
      Northern Trust to take $55 million charge for job cuts
    • The Great Seal of the State of New Mexico in the House of Representatives chamber within the New Mexico State Capitol in Santa Fe
      New Mexico PERA executive director taking new position
      ABP calls for clarity over funding ratio rules
      CalPERS CEO Marcie Frost
      CalPERS’ pick for new CIO expected soon
      Ohio Public Employees returns 11.35% in 2020
    • The Great Seal of the State of New Mexico in the House of Representatives chamber within the New Mexico State Capitol in Santa Fe
      New Mexico PERA executive director taking new position
      Marques Benton
      Loomis Sayles chooses first chief diversity officer
      Charles Wu
      State Super appoints chief investment officer
      Kenneth J. Munro III
      Empower names new national sales director
    • Pension funds continue private equity investing spree
      Big jump in private equity AUM expected over next 5 years
      Thoma Bravo takes in $22.8 billion for 3 funds
      Jason Thomas
      Data, technology become new prized possessions
    • Chiang Ling Ng
      Hines hires first head of Asia-Pacific real estate investments
      Brand new apartment building on sunny day in spring with blooming trees
      Real estate returns forecast to trend lower – report
      Ivanhoe Cambridge Inc. signage is displayed outside the company's office near Bay Street in Toronto on Aug. 29, 2011
      Ivanhoe Cambridge, PAG announce joint venture for Japan logistics investments
      Residential buildings in Hong Kong on Feb. 20, 2020
      KKR closes first Asia-Pacific real estate fund at $1.7 billion
    • Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
      David Ireland
      Sponsors returning to questions about in-plan annuities
    • Outlook 2021
      The top 10 stories of 2020
      The best places to work in money management
      Investment consultants
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Houston Firefighters puts $180 million into 3 funds
      LACERA allocates up to $442 million with 6 managers
      BBC Pension Scheme re-signs HSBC as global custodian
      Stanislaus County Employees earmarks $20 million to buyout fund
    • Houston Firefighters puts $180 million into 3 funds
      LACERA allocates up to $442 million with 6 managers
      BBC Pension Scheme re-signs HSBC as global custodian
      Stanislaus County Employees earmarks $20 million to buyout fund
    • International Small Cap Manager Services
      Financial Expertise
      Passive Index Manager Services
      Emerging Markets Equity Investment Management Services
    • Taiwan Semiconductor’s No. 1 in the emerging markets book
      U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Retirement cartoon
      Hopes rising for retirement readiness in 2021
      view gallery
      25 photos
      2020 in editorial Cartoons
      view gallery
      25 photos
      Cartoons depict a year like no other
      Consultants cartoon
      Seeking an investment consultant? Caveat emptor
    • GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
      Gold Outlook 2021
      Bond ETFs show maturity during Covid market mayhem
      2021 Outlook: A rousing recovery
    • Charles E.F. MIllard
      Commentary: It’s time to make 401(k) plans into real pension plans
      Michael McNally
      Commentary: New ‘investment-plus’ test poses risks to private equity investors
      Adam Waterous
      Commentary: Institutions urged to act now on opportunities created by current global oil disruption
      Ron Lagnado
      Commentary: Straw man critiques don’t hold up in face of real world success
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
      Sponsored Content By Aberdeen Standard Investments
      Taking a passive approach to the hedge-fund universe
      Sponsored Content By World Gold Council
      Gold: the most effective commodity investment
      Sponsored Content By Moody's Analytics
      The Industrialization of ESG Investment
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      1:24
      U.S. stocks were 2020’s comeback kid
      watch video
      1:23
      Outlook 2021
      watch video
      1:52
      Buy gold's pullback?
      Coronavirus and the S&P 500: 2020
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      Lessons From 2020: OCIO Model Passes Major Test of Governance
      What might a Biden DOL and SEC mean for retirement plans?
      Staying on target with target-date funds
    • POLL: Retirement issues in 2021
      POLL: Money managers' priority in Asia-Pacific region
      POLL: Retirement issues in the presidential election
      POLL: The S&P 500 in the third quarter
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • Taiwan Semiconductor’s No. 1 in the emerging markets book
      Graphic: U.S. stocks were 2020's comeback kid
      U.S. fixed-income returns post another positive year
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      Lessons From 2020: OCIO Model Passes Major Test of Governance
      What might a Biden DOL and SEC mean for retirement plans?
      Staying on target with target-date funds
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. Print
April 04, 2016 01:00 AM

Washington holds key for Puerto Rico bondholders

Shared pain likely; new proposal in House is slammed by group

Hazel Bradford
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    AP Photo/Jacquelyn Martin
    Treasury officials say Puerto Rico's debt load is unsustainable. Secretary Jacob Lew told Congress bondholders 'need to be part of the solution.'

    As Puerto Rico faces upcoming deadlines for paying bondholders and other creditors, all eyes are turning to Washington with hopes that the White House, Congress or even the Supreme Court can work out a solution.

    No one expects a clear victor, but the practical solution could at least share the pain, observers say.

    There are many moving parts, including 20 classes of creditors holding as much as $72 billion in bonds and expecting $2 billion in debt payments in May and June.

    With no resources to tap, the commonwealth has resorted to extreme measures, including borrowing from a nearly depleted pension fund, to pay bills and bondholders.

    Pension liabilities of the Puerto Rico Employees' Retirement System, Hato Rey, are now $46 billion. A Treasury Department analysis in October noted that because Puerto Rico failed to make annual contributions in the past decade, the fund is selling assets to pay current benefits, making total asset depletion likely by 2019.

    Antonio Weiss, counselor to Treasury Secretary Jacob Lew, told a congressional panel earlier this year that the pension fund now has $2 billion in assets.

    About one-third of annual revenue is consumed by tax-supported debt service. With total liabilities exceeding 160% of GDP, Puerto Rico's debt load is unsustainable, Treasury officials said. “All stakeholders, including bondholders, need to be part of the solution,” Mr. Lew told Congress last year.

    At a White House meeting of Puerto Rican interest groups in February, Mr. Lew said it will take “new tools,” including independent fiscal oversight and an orderly process for debt restructuring that has to come from Congress.

    Such uncertainty “is already having an effect on the marketplace,” said Hector Negroni, co-CEO and chief investment officer of Fundamental Credit Opportunities, New York, at a February gathering hosted by the Bipartisan Policy Center in Washington. “The global investment community is very interested (in investing in Puerto Rico). They just want to wade into less choppy waters,” he said.

    Groups dig in

    Most U.S. defined benefit and defined contribution plans, endowments and foundations don't invest in tax-exempt debt, but some of their money managers, especially high-yield debt managers and distressed debt hedge funds, have exposure to the island's financial crisis through their bond holdings.

    According to specialty researcher Municipal Market Analytics Inc., Westport, Conn., hedge funds, mutual funds and retail investors each hold about one-third of the debt.

    Those hedge fund firms include Angelo Gordon & Co., BlueMountain Capital Management LLC, Brigade Capital Management LP, Centerbridge Partners LP, Davidson Kempner Capital Management LP, Fir Tree Inc., Knighthead Capital Management LLC, Marathon Asset Management LP, Monarch Alternative Capital LP, Stone Lion Capital Partners LP and D.E. Shaw Group, according to court documents and Bloomberg reports.

    Traditional money managers that own Puerto Rican municipal bonds include Franklin Advisers Inc., Fundamental Advisors LP, Goldman Sachs Asset Management and OppenheimerFunds.

    Some bondholders have formed ad hoc restructuring groups, depending on the specific kind of bonds they hold, such as those of the Puerto Rico Electric Power Authority.

    Questions about Puerto Rico's ability — both legal and financial — to restructure its debt has bondholder groups digging in while Congress and the White House try to come up with solutions.

    The main challenge before Congress is to address U.S. bankruptcy law that specifically excludes Puerto Rico from that option. After proposals to change that failed to gain traction, the House Committee on Natural Resources, which has jurisdiction over U.S. territories, on March 29 floated a discussion draft of legislation seeking a middle path. It included an independent oversight board to appease critics of Puerto Rico's spending habits, ideas for spurring private investment and provisions for voluntary restructuring with some creditors.

    The new board could authorize bankruptcy petitions “as a last resort,” according to the draft.

    The legislation is slated for official release April 11 and a hearing two days later, with “conversations between now and then,” said a committee staffer who attributed much of the urgency to concern for pensioners. For debtholders, “we don't seek to preserve one right over another. ... Our goal is try to get things done as quickly as possible,” he said.

    A leading group of bondholders wasted no time criticizing the proposal.

    “The discussion draft bill is worse for creditors than Chapter 9,” said financial adviser Stephen Spencer of Houlihan Lokey, Washington, who represents major Puerto Rico creditors, including OppenheimerFunds and Franklin Advisers.

    The PREPA Bondholder Group, which includes BlueMountain Capital Management, Marathon Asset Management, Knighthead Capital Management, Franklin Resources, Oppenheimer, D.E. Shaw Galvanic Portfolios and Angelo Gordon, “are lobbying the issue very actively,” said a financial services lobbyist who declined to be identified.

    Some general obligation bond investors are less committed, he said. “They may feel like they don't have a stake, and might be better off under” the bankruptcy process or other restructuring.

    One proposal from a Puerto Rico working group would have creditors holding $49 billion of tax-supported debt exchange it for two new securities with better collateral security and liquidity.

    Another group of Puerto Rico bondholders with $7 billion of senior bonds issued by government entity Cofina has proposed a payment plan protecting their holdings and allowing the commonwealth to limit and extend interest payments, as opposed to eliminating protections to investors who thought bankruptcy was not a remote possibility.

    Despite the political sensitivity of a control board, “the reality is that, if Congress is going to provide Puerto Rico with reasonable debt restructuring authority, it will be coupled with a fiscal oversight board,” Puerto Rico Resident Commissioner Pedro Pierluisi said in a statement March 29. “However, the oversight board must have teeth, but not fangs.”

    Bankruptcy an option?

    Some Capitol Hill watchers think the likeliest scenario is that PREPA will default, followed by other bond issuers.

    “It's just a matter of time before PREPA misses a payment, and as soon as they do, they (bondholders) will move to get paid,” said the lobbyist. If there is a default, a receiver would have to prioritize payments to creditors, which could be better for the bondholders than what a bankruptcy judge would do.

    Allowing bankruptcy as an option for Puerto Rico depends on action by Congress or the Supreme Court.

    Puerto Rican officials were pleasantly surprised when the Supreme Court agreed to take a case challenging two lower court decisions that invalidated Puerto Rico's 2014 restructuring law. That law would allow Puerto Rico to take advantage of U.S. bankruptcy law that specifically excludes Puerto Rico.

    During March 22 oral arguments on the combined cases of Puerto Rico vs. Franklin California Tax-Free Trust and Acosta-Febo vs. Franklin California Tax-Free Trust, several justices seemed sympathetic to Puerto Rico's plight.

    “Why would Congress put Puerto Rico in this never-never land?” asked Justice Ruth Bader Ginsburg. “What explains Congress wanting to put Puerto Rico in this anomalous position of not being able to restructure its debt?” she asked.

    Related Articles
    Puerto Rico's bonds overshadow pension fund poised to go broke in 5 years
    Supreme Court agrees to review Puerto Rico bankruptcy law
    Puerto Rico investors sue to stop payments by development bank
    Puerto Rico to default on $422 million payment
    Puerto Rico restructuring bill introduced in House
    AFL-CIO seeks SEC probe of asset managers on Puerto Rico bond holdings
    Puerto Rico pension risks insolvency next year, audit says
    House passes Puerto Rico restructuring package
    Puerto Rico debt-restructuring law voided by U.S. high court
    Blackstone acquires minority stake in Marathon Asset Management
    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    Gender diversity is improving on FTSE 350 boards
    Gender diversity is improving on FTSE 350 boards
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management
    sponsored
    Events
     
     
    Sponsored
    White Papers
    GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
    Gold Outlook 2021
    Bond ETFs show maturity during Covid market mayhem
    Global gold-backed ETFs: A popular gateway to the gold market
    2021 Outlook: A rousing recovery
    Climate change and emerging markets after Covid-19
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center