“I’m surprised by the amount that the bonds have rallied because there’s still a lot of questions to be asked,” said Mark Paris, senior portfolio manager at Invesco Advisers Inc. which oversees $27.2 billion in municipal assets. “They need to do a lot for the people on the island before they start really worrying about bondholders. So I don’t know how you calculate the recovery.”
Rossello’s fiscal plan calculates the island could pay as much as $19.1 billion of principal over 30 years if the debt were restructured with an interest rate of 4.5 percent -- enough to cover about half the outstanding principal the central government owes. But that’s only a projection. The recoveries will ultimately be determined in bankruptcy court as the federal board and creditors negotiate on a deal.
“Many of the recoveries will be determined through negotiation essentially and it’s unclear to me that the current fiscal plan that’s been put on the table will have a great deal of influence on this process,” said Ted Hampton, an analyst at Moody’s Investors Service in New York.
Even with federal funds for rebuilding after the storm, Puerto Rico’s faces challenges. More than 45 percent of residents live in poverty, workforce participation is about 40 percent and the fiscal plan projects the population will still shrink.
“The numbers are still pretty ugly,” said Joe Rosenblum, director of municipal credit at AllianceBernstein LP, which oversees $41 billion of municipal debt. "For now, I think the optimism has played out."
This article was provided by Bloomberg News.