Puerto Rico Bond Losses Are Priced In, OppenheimerFunds CEO Says

  • Island moving closer to restructuring of $70 billion debt
  • Government has until May 1 to come to agreement with creditors

The trading prices of Puerto Rico bonds largely account for the losses investors will take when the island restructures its $70 billion debt, said Art Steinmetz, the chairman and chief executive officer of OppenheimerFunds Inc., a major holder of the island’s securities.

Puerto Rico’s bonds tumbled last month after its federal overseers approved a fiscal recovery plan that will cover only a fraction of the debt payments that are due. That plan is being used to determine how deeply the island needs to cut its debt, which can be done in a bankruptcy-like proceeding if no agreement can be reached with bondholders.

One of the island’s most active securities traded at about 62.9 cents on the dollar Monday.

"They’re already priced well below par, so we think a lot of these bonds are close to what they’re going to be worth in a post-restructuring scenario, whatever that happens to be," Steinmetz said Monday in an interview with Bloomberg Television. "The biggest volatility actually happened back in 2013 when the fiscal problems first started surfacing to a wider audience."

OppenheimerFunds holds Puerto Rico bonds in its mutual funds and has been among the creditors negotiating with the island, which began defaulting on its debt in 2015.

The commonwealth came under federal oversight last year after Congress passed emergency legislation to allow for its debts to be written down in court, if needed. Puerto Rico’s government has until May 1 to negotiate agreements with its creditors before a legal stay that has sheltered it from creditor lawsuits is set to expire.

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