Monday 20 March 2017

Puerto Rico and other 'special opportunities'

I remember being shown some 'special opportunity' funds about 2 years ago by US distressed groups to desperate to buy Puerto Rico bonds given how little other distressed opportunities there were at that time. Without going into the details the country has something like $70bn of debt, $28bn of tax revenue and a shrinking economy. Looked like a sub-50c recovery to me on average with some bonds having specific assets or taxes pledged and less secured bonds potentially faring worse. But eitherway the final outcome seemed very unpredictable. 

At the time the general bonds were around 80c, and Obama was calling for some sort of debt restructuring while the funds were suggesting PR would get a bailout and the funds would buy at 80 and get par plus coupons. Doesnt seem like the trade is going to plan... 

 As US rates rise and the USD funding shortage gets tighter, more EM sovereign defaults to come, with many expecting Vene to be next. 

The post-default environment could present interesting opportunities though...

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