Puerto Rico bonds took a huge hit last week when President Trump suggested the U.S. government may eliminate the nation’s debt in wake of its ongoing financial crisis.
“They owe a lot of money to your friends on Wall Street, and we’re going to have to wipe that out,” Trump said in an interview with Fox News. Puerto Rico currently owes $13 billion of general-obligation debt and $72 billion in total debt.
The suggestion that bondholders could be the ones left holding the bag in Puerto Rico sent the price of the island’s general obligation bonds tanking to just 37 cents on the dollar last Wednesday, down from 56 cents a month ago.
- Here’s a look at some of the bondholders and bond insurers that could be hit hardest if Puerto Rico’s slate is wiped clean.
- Assured Guarantee Ltd. AGO had a net par exposure to Puerto Rico of about $5 billion as of the end of June.
- Ambac Financial Group, Inc. AMBC had a net par exposure of $2.1 billion as of the end of June.
- The Baupost Group, managed by billionaire value investor Seth Klarman, recently disclosed that it owns nearly $1 billion in Puerto Rican debt. Klarman apparently doesn’t personally own any Puerto Rican debt.
- A group of hedge funds, including Aurelius Capital Management, Autonomy Capital (Jersey), FCO Advisors, Franklin Mutual Advisers, Monarch Alternative Capital, Senator Investment Group and Stone Lion, collectively owns $3.3 billion of Puerto Rican debt, according to new court documents. Autonomy Capital holds the most general obligation debt of the group at $937.6 million.
Little Guy The Biggest Loser
Everyday Americans, including individual bond investors and mutual fund investors, reportedly have the largest overall exposure to Puerto Rican debt. Puerto Rico Clearinghouse estimates that there are more than half a million individual Puerto Rican bondholders and hundreds of thousands of investors who own the bonds via funds such as the SPDR Series Trust HYMB, the Van Eck Vectors Short High-Yield Municipal Index ETF SHYD and the PowerShares New York AMT-Free Municipal PZT.
Time To Buy?
Surprisingly, some investors see Trump’s words as an opportunity to buy. Highland Capital co-founder Mark Okada said his $18 billion hedge fund is looking into the possibility of buying Puerto Rican debt on the cheap.
“I think people are overreacting to what Trump said,” Okada said last week.
MKM Partners analyst Harry Fong also sees opportunity for investors.
“The shares of the bond insurers are all down sharply today on Trump’s comments and, in our view, this could present an opportunity to acquire the shares at well below fair value,” he wrote. MKM maintains Buy ratings for Assured Guarantee and MBIA.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on Bankrate.com. The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.
All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the Bankrate.com rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.
Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.
Rate collection and criteria: Click here for more information on rate collection and criteria.