Less than two weeks before Puerto Rico is poised to miss a $422 million payment on its debt, one of the country’s largest managers of municipal bond assets has proclaimed its support for a congressional proposal that would create a financial oversight board that could initiate a court-supervised restructuring of the island’s debt.
With that deadline approaching, the island’s development bank filed this week to sell more debt, in the form of taxable securities that would mature in May 2017.
John Miller, the co-head of fixed income at Nuveen Asset Management, says in a statement released today that the proposal “provides a fair framework for consensual negotiations between Puerto Rico and its creditors and will not increase borrowing costs for U.S. states, municipalities or other territories.”
According to Miller, the proposal is not a bailout for Puerto Rico, which owes $72 billion to creditors, but a pathway for a negotiated solution.
The proposed legislation “will provide better outcomes and recoveries for thousands of individual investors that lack the ability to aggressively lobby Congress, submit editorials or seek injunctions. These investors hold an estimated one-third of Puerto Rico’s debt and will realize the best recoveries possible if there is an effective oversight board shepherding the process and seeking equitable outcomes for all creditors both big and small.”
Many individual investors own Puerto Rican debt through municipal bond funds, which, in turn, bought these bonds because they are triple tax-exempt – exempt from federal, state and local income taxes for all investors, no matter where they live.