Entries by Daniel S. Solender, CFA

    Puerto Rico: Nine Key Points for Muni Investors

    May 4, 2016 3:50 PM by Daniel S. Solender, CFA

    News of a May 1st default on $400 million in debt has put the commonwealth’s fiscal situation back in the spotlight. Here’s what investors need to know.

    Puerto Rico returned to the headlines on May 1 after the commonwealth announced that it would default on $400 million in debt of its Government Development Bank (GDB). (The GDB did reach a tentative agreement with a group of investors to extend some of the bond maturities, though the complete details of the deal are not yet clear.) 

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    Puerto Rico Looks for a Lifeline from Washington

    October 23, 2015 2:40 PM by Daniel S. Solender, CFA

    A White House proposal that would allow the commonwealth to file for bankruptcy drove down prices of Puerto Rico municipal bonds, but the offer likely has little chance of passage in Congress. 

    With the end of 2015 drawing closer, Puerto Rico continues to move slowly on making any meaningful changes to its troubled fiscal situation—and the status of its $72 billion in municipal-bond debt. Deadlines keep passing without creditor agreements for restructuring the debt of one of the island’s main muni-bond issuers, the Power Authority. And the commonwealth has not had any success in negotiations with creditors of another key issuer, the Government Development Bank.

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    Puerto Rico Decides to Default

    August 5, 2015 11:45 AM by Daniel S. Solender, CFA

    The government has the ability to pay interest, but apparently is no longer willing to pay bondholders.

    On August 3, Puerto Rico made a payment of only $628,000 out of the $58 million it owes on its Public Finance Corporation bonds. After two years of conversations and media statements, this is the commonwealth’s first default. Officials claimed that the payment was not made because the money had not been appropriated by their legislature; but this only happened because they had failed to make the funding request a few weeks ago. 

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    Puerto Rico: What Happens Next?

    July 2, 2015 2:20 PM by Daniel S. Solender, CFA

    Here’s an assessment of the possible fallout from Governor Garcia Padilla’s statement that the commonwealth will be unable to pay its $72 billion in municipal debt. 

    Puerto Rico’s fiscal challenges have been in the news for a couple of years, but on June 28, the commonwealth’s governor, Alejandro Garcia Padilla, made comments that put even further stress on its $72 billion in municipal bonds.

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    Explaining the Wide World of Municipal Bonds

    October 2, 2014 10:30 AM by Daniel S. Solender, CFA

    Ever wonder where all those attractive tax-free yields come from? If you’re thinking mostly from general obligation bonds, think again. Revenue bonds comprise a much larger portion of the investable universe.

    I used to drive my children crazy on long trips. To keep them interested, or at least engaged, I would point out all the things Lord Abbett’s municipal bond funds may invest in. It wasn’t just the towns and states we were driving through (or the general obligation bonds1 they issue (see Chart 1), a category that makes up nearly 28% of the $3.7 trillion municipals market - see Chart 2). There was much more to choose from in the revenue bonds2 sector, which comprises more than 72% of our market (see Chart 3) and offers a wide variety of high yield opportunities.)

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    Puerto Rico, One Year Later

    September 5, 2014 1:45 PM by Daniel S. Solender, CFA

    The commonwealth is not out of the woods, but "ring-fencing" may offer bondholders some protections.

    Although Puerto Rico has been facing fiscal issues for many years, an article published one year ago in Barron’s (“Troubling Winds,” August 26, 2013) made the issues more widely known. This spotlight led to increased municipal bond mutual fund redemptions last year, which caused prices on Puerto Rico bonds to drop, leading to concerns about the commonwealth’s ability to finance itself. Puerto Rico’s credit ratings also were downgraded, but this occurred well after the market had mostly priced in the concerns.

    So, how does Puerto Rico look today?

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    Puerto Rico: Is the New Debt Law a Game Changer for Muni Investors?

    July 3, 2014 2:26 PM by Daniel S. Solender, CFA

    While new debt-restructuring legislation does not include the commonwealth itself, muni investors are clearly worried about the direction of the island’s government policy. 

    Last week, Puerto Rico passed a new law allowing its most financially stressed public corporations to restructure their debts in a process akin to bankruptcy. The law excluded the commonwealth, its sales tax-backed COFINA bonds, and its Government Development Bank (GDB) from being able to restructure, according to a Reuters report. But the new law has become a trigger for significant downward movement in most Puerto Rico bonds—including general obligations (GOs).

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    Munis: The High-Yield Evolution

    April 5, 2014 8:45 AM by Daniel S. Solender, CFA

    Among the key changes in the high-yield muni market in recent years: More billion-dollar issuers. 

    The high-yield municipal bond market has been on the rebound in 2014 after a rough 2013. In fact, momentum has picked up in 2014, with a year-to-date return of 5.4% for the Barclays High Yield Municipal Bond Index  (through February 28), versus a gain of 3.1% for the broader Barclays Municipal Bond Index.  Investors who may be thinking of kicking the tires of the high-yield muni market should be aware that it has changed greatly in the last several years. In my latest Municipal Matters column, I've identified six key developments in this category since 2007, just before the start of the financial crisis. I'll spotlight one of the biggest changes here.

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