Muni-Bond Vultures Rethink Risks Lurking in Market's Junk Yard
- Puerto Rico bankruptcy rule changes surprised traders
- Distressed funds say they’ll demand discounts in the future
How Did Puerto Rico Go Bankrupt?
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Puerto Rico’s bankruptcy has left distressed municipal-debt traders like Hector Negroni wondering if the old rules still apply -- not just in San Juan, but across the U.S.
The island’s effort to shred protections written into its constitution to determine which creditors get paid first has made Negroni reconsider the high-yield, high-risk corner of the $3.8 trillion muni-bond market. “They’re attempting to suspend the constitution,” said Negroni, a principal at New York-based hedge fund Fundamental Credit Opportunities and a member of the general-obligation ad hoc group pushing for full payback.