Money manager Glenn Ryhanych sat at his office in Virginia, waiting To get the last resolution of insolvent Puerto Rico’s virtually two-year saga with its $17.6 billion of sales-tax-backed bonds. He got a shock instead. Last week a UBS broker was sentenced for fraud with Puerto Rico Bonds.
On Feb. 12, the island traded the old bonds for new ones of lesser worth, allowing it to cut the amount of the debt outstanding by nearly a third. However, the transaction brought another surprise to investors such as him because the new bonds were issued in just $1,000 increments — and also any odd lots were piled down — the sum they received was in many instances less than they had been anticipating.
“When we watched everything coming, how it was coming in, And down the rounding, we were like’oh my God,” Ryhanych, president of BlueList Partners, stated about seeing the fluctuations in his clients’ accounts following the debt swap.
The owners of this debt knew they would be getting less than what Puerto Rico promised when it issued its sales-tax bonds years back along with a majority signed off on the agreement from the government’s bankruptcy, which began in May 2017. The deal called for the new debt to be issued at a rate of 93 cents on the dollar to holders of senior-lien bonds, together with owners of securities getting 56 cents. They were not expecting to take extra losses if the bet they had been owed was not evenly divisible by 1,000.
Bondholders May soon receive the rest, according to a court filing, so the stress of the past two weeks might only be a temporary hiccup at a kind of debt restructuring infrequently seen from the municipal-bond market, in which defaults and bankruptcies are incredibly uncommon.
“I’ve been doing this for 25 years and, at least the Surface, the implementation of this thing with all the individual or retail investor in mind was a complete abomination,” explained Ryhanych, that oversaw $11 million of mature sales-tax bonds prior to the debt exchange.
Puerto Bonds Restructuring Goes to Court
A court document Posted Friday about the Municipal Securities Rulemaking Board’s site stated that Depository Trust Co., the depository firm distributing the bonds and money to broker-dealers, is currently permitted to alter the threshold for rounding down. Broker-dealers may also offer cash to cover amounts under the threshold.
A spokesman at Bank of America Corp., the director of the restructuring, declined to comment, as did a spokesman at Stifel Financial Corp.. Miller Buckfire, a unit of Stifel, served as a financial advisor to a group of senior bondholders. Said that it is conscious that certain bondholders have not yet obtained the correct initial distributions and Depository Trust Co., has rectified the situation through allocations to broker-dealers, ” the bureau said in an email Friday.
“To the extent bondholders have Questions regarding when money and bond distributions will be reflected in their account, we recommend them to contact their agents or account managers concerning their particular situations,” Christian Sobrino, executive director for Puerto Rico’s Fiscal Agency and Financial Advisory Authority stated in an email.
A federal board which manages Puerto Rico finances and its bankruptcy procedure support the efforts of all parties to address promptly any supply issues,” Matthias Rieker, a spokesman for the board, said in an email Friday.
Before Friday’s statements, some brokerage firms had planned to pool together bonds which fall below $1,000, called fractional bonds, and sell them to raise money that they’ll then lead to their customers who are waiting to achieve their entire recovery amounts.
The confusion had Left investors questioning if they will find the money for their fractional Shares, Ryhanych said. And because the new sales-tax bonds don’t yet Have a credit rating, he was not sure if pooling the bonds may raise Sufficient money to make up the difference.
(Adds Remark from Puerto Rico agency in the paragraph. A preceding Version of the story was corrected because it said an investors Holdings were in billions, not millions.)
Tom Barron has Bachelors Degree from Michigan State, MBA from University of Miami and worked as equities trader for Bank of America. When he is covering investment news, he is spending time with his family. Hobbies include golf and travel.