Many holders of Puerto Rican bonds have had to delay retirement, find alternative sources for their children's college funds or rejoin the workforce
In this July 26, 2016 photo, attorney Santiago Mari talks to a client in front of a federal courthouse in San Juan, Puerto Rico. He is one of tens of thousands of Puerto Rico bond holders who see a glimmer of hope in a new restructuring plan recently approved by the U.S. government that could help recover some of their losses. (AP Photo/Danica Coto), photo: AP/Danica Coto
01 of August 2016 13:35:19
SAN JUAN, Puerto Rico — Attorney Santiago Mari sighed as he punched numbers into his calculator and saw the result.
I still have hope within my despair. The solution has to come from the outside. If it's left in local hands, they will plunder what little remains."—Santiago Mari, holder of Puerto Rican bondsPrices for Puerto Rican bonds have plummeted, devastating many investors in Puerto Rico and on the mainland. Some have had to delay retirement, find alternative sources for their children's college funds or rejoin the workforce."My dream was to retire at 55 years old, and I worked hard for that," said 57-year-old Eduardo Rodríguez, a former maintenance worker who now works in a supermarket. "What can I do? They say men don't cry, but we do."Many hold out hope that a new federal aid package signed by President Barack Obama in June will at least limit their losses. The measure creates a federal control board to oversee Puerto Rico's finances, supervise some debt restructuring and negotiate with creditors. Puerto Rico bonds rallied by some 20 percent that day and remained at that level even after the governor announced a moratorium on general obligation debt, Acosta said.The news has encouraged Mari who, unlike some of his friends, has retained his bonds."I still have hope within my despair," Mari said. "The solution has to come from the outside. If it's left in local hands, they will plunder what little remains."While it's too early to know what changes the control board will implement, a restructuring process of any kind would be positive, Acosta said."Honestly, anything is better than what we have right now," he said.Some analysts cautioned about reading too much into the bond price rally, however."It was a momentary, reflex reaction as opposed to a market-moving event," said Jim Colby, who runs the $2.2 billion VanEck Vectors High Yield Municipal Index, an exchange-traded fund in New York.He said Puerto Rico general obligation bonds, which many consider Puerto Rico's safest, are trading at around 65 cents on the dollar, and that future prices might be close to that. But "there's really no telling right now what kind of haircut, what kind of valuation is going to be given to any of the bonds of any of the series that are currently outstanding but not paying their interest."It's going to be a long time before we really have a clear picture," he added.Of the estimated $15 billion debt held by Puerto Rico investors, $3.8 billion of the original $7 billion issued belongs to the Government Development Bank, which is operating under a state of emergency, and another $1 billion to the Public Finance Corporation, which was the first government agency to default. Only a small portion represents general obligation debt that is expected to receive top priority once the anticipated restructuring begins.Raymond Watson, a former director of Puerto Rico's Highway Transportation Authority, bought general obligation debt because he believed it was the most secure. The 80-year-old said he was aghast when the governor last month declared a moratorium on that debt even though it is supposedly backed by the island's constitution."That is almost as sacred as the Bible," he said, adding that he and his wife face high medical bills and worry about being forced to declare bankruptcy. "We are not indulging in any kind of luxuries. We have cut back greatly on eating out, even if it's at Burger King. We used to take a cruise almost yearly. None of that. We are now prisoners in our own home."Watson holds out hope that the federal aid measures will help.At a minimum, they could repair Puerto Rico's credibility by stabilizing the island's finances and providing long-overdue transparency, which in turn could help it re-enter the market and allow people to recuperate some of their investment, Acosta said.That's an encouraging prospect for Mari, who said some bonds he bought at $10 are now worth $1 or $2."I am holding on until the end," he said. "The uncertainty is killing me."