Cumberland Advisors Market Commentary –  Trump Opportunity, Puerto Rico, Pharma

My friend Dennis Gartman had a guest commentary in the wonderful and comprehensive monthly research publication offered by Gary Shilling (www.agaryshilling.com) and thoughtfully assembled and edited by Fred Rossi. I thank both Gary and Fred for permission to quote their work.

Cumberland Advisors Market Commentary - Trump Opportunity, Puerto Rico, Pharma

Dennis wrote:

“Puerto Rico shall be a huge winner, for it was only a bit more than a decade ago that the Commonwealth was a massive supplier of pharmaceuticals to the US for a number of reasons, not the least of which was the tax model that applied to the pharmaceutical companies located there. Congress would do well to reinstitute those tax laws; and if Congress does, Puerto Rico’s economy will benefit… greatly.”

Dennis and Gary published on this topic before I did, so they must be credited here. We agree and must add that PR holds the key to the resurgence of domestic American pharmaceutical manufacturing. If President Trump and his advisers want to return the safety of US medical manufacturing to America, they can do it with the stroke of a pen (with congressional help).

The history is simple.

For years the American pharma companies manufactured in PR. They were there under a special tax provision known as Section 936, which had been in the law for years. President Clinton launched an initiative to repeal 936. That repeal took effect in 1996, and the incentives were phased out over a ten-year period. So the full impact hit after 2006. While a 2006 GAO study reported data that overall manufacturing activity had grown during the phaseout, with pharma manufacturing being more than replaced by other business development in the chemical industry (GAO, 2006, https://www.gao.gov/products/GAO-06-541, pg. 17), the more telling statistic is that Puerto Rico’s overall manufacturing job base fell by more than 40% during the phase-out and today is more than 50% lower than in 1996. Overall labor force growth was flat to negative for the past half-decade, while in the US mainland it was strongly upward (until COVID-19). See “Here’s how an obscure tax change sank Puerto Rico’s economy,” CNBC, Sept. 26, 2017, https://www.cnbc.com/2017/09/26/heres-how-an-obscure-tax-change-sank-puerto-ricos-economy.html.

PR’s financial decline landed it in the present dire circumstances. The situation was then made far worse by damage from Hurricane Maria in 2017, and now COVID-19 has hit.

Pharma moved to India, China, and elsewhere. Now the US policy makers want to move things back. White House trade adviser Peter Navarro announced on March 16 that he was bringing to President Trump an executive order that would require US companies to relocate their medical supply chains back to the United States. Big Pharma immediately pushed back hard, and Navarro counterattacked (“Trump advisor Peter Navarro slams Big Pharma’s lobbying against possible ‘Buy America’ executive order,” CNBC, March 19, 2020, https://www.cnbc.com/2020/03/19/coronavirus-trump-aide-peter-navarro-slams-big-pharma.html). As of May 4, the order had still not been signed, and Reuters reported that the issue had divided some of Trump’s key advisers, with Treasury Secretary Mnuchin and economic adviser Larry Kudlow opposing the order (“Trump order to buy U.S.-made medical supplies coming soon –Navarro,” Nasdaq, May 4, 2020, https://www.nasdaq.com/articles/trump-order-to-buy-u.s.-made-medical-supplies-coming-soon-navarro-2020-05-04).

Congress could immediately undo the damage it did in 1996. Trump could then rightfully claim credit for restoring medical manufacturing and relocating it back to Puerto Rico, where there is still a residual of skills and some residual capital (“A Hotspot for Pharmaceutical Manufacturing,” Government of Puerto Rico, http://www.pridco.com/industries/Pages/Pharmaceutical.aspx). The incentives that worked in the past would likely start an immediate inflow of capital, and America’s medical supplies would be returning under the safe US umbrella of supervision and domestic manufacturing.

At the same time PR would likely begin to heal its economic malaise.

All it takes is concerted action from our politicians.

Disclosure: Please note that Cumberland has a number of clients with investments in certain insured PR debt instruments and has positions in ETFs with certain pharmaceutical companies.

David R. Kotok
Chairman of the Board & Chief Investment Officer
Email | Bio


Download a PDF version of this commentary:  Cumberland Advisors Market Commentary-Trump Opportunity, Puerto Rico, Pharma by David R. Kotok


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4Q2019 Review: Puerto Rico

As we reflect on a tumultuous fourth quarter for the Commonwealth of Puerto Rico, early progress in 2019 in the island’s bankruptcy brought optimism, however that optimism has since turned to frustration as headway has slowed, uncertainty has increased, and questions remain unanswered.

Market Commentary Puerto Rico

October saw the release of a plan of adjustment to restructure the island’s public debt and pension liabilities. Though opposed by many creditors, the plan did provide a basis and a structure for court-ordered negotiations. We did not expect negotiations to go anywhere, however, unless questions regarding the validity of certain debts were answered. Our expectations were confirmed as the negotiations have yielded little except a recommendation from mediators for litigation regarding debt validity to move forward.

One of the most pivotal questions to date will be answered sometime in 2020. Following oral arguments, the Supreme Court is expected to rule regarding whether Puerto Rico’s FOMB officials are territorial or federal representatives and therefore whether they were appointed appropriately. What the justices decide remains to be seen, but the ramifications of their decision could be enormous.

2020 is set to be a crucial year for the Commonwealth, as we may finally get much-needed answers. Although this year did bring us closer to a conclusion, an exit from bankruptcy remains a long way off.

Our Puerto Rico Insured Bond strategy continues to look for opportunities in the space although we tread very carefully due to acceleration risks.

Shaun Burgess
Portfolio Manager & Fixed Income Analyst
Email | Bio


In addition to Shaun’s commentary here, it’s that time of year when the rest of the Team at Cumberland Advisors provide their Q4 Reviews.

Market Commentary - Cumberland Advisors - 2019 Q4 Strategy Reviews

We may discuss what we favor, cash positions, warning signs, and what we see as opportunities. Read more Q4 Reviews to learn about the thinking behind our positioning of portfolios and how we execute strategies at this link: https://www.cumber.com/2019-q4-reviews/


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3Q2019 Review: Puerto Rico

As the third quarter comes to a close, it will go down as one of the most turbulent in recent memory for the Commonwealth of Puerto Rico. Civil unrest led to a number of high-profile resignations as well as to three different individuals holding the title of governor in the span of a week.

Market Commentary Puerto Rico

The current governor, Wanda Vazquez, was appointed following the resignations of Ricardo Rossello and the illegal appointment of Pedro Pierluisi. We hope this experience leads to lower corruption and greater transparency.

In a much-anticipated filing, the Commonwealth released a plan of adjustment that addresses claims against it, the Public Building Authority (PBA), the Employee Retirement System (ERS), as well as $50 billion of pension liabilities. The plan will cut Puerto Rico’s debt by 60%, with recoveries varying depending on issuer and issuance date. The plan also includes an 8.5% pension reduction for certain retirees. This last point is, predictably, deeply unpopular amongst island officials. The plan, even with serious flaws, will form the basis for further negotiations and may finally lead to an exit from bankruptcy.

October is set to be a very important month, as the US Supreme Court will hear oral arguments regarding the manner in which Federal Oversight and Management Board officials were appointed. The court will also decide if decisions they have made will be allowed to stand. Invalidation of their decisions, which we think unlikely, could lead to significant volatility. Insured paper continues to face acceleratory risk, which we manage accordingly.

Shaun Burgess
Portfolio Manager & Fixed Income Analyst
Email | Bio


In addition to Shaun’s commentary here, it’s that time of year when the rest of the Team at Cumberland Advisors provide their Q3 Reviews. We may discuss what we favor, cash positions, warning signs, and what we see as opportunities. Read more Q3 Reviews to learn about the thinking behind our positioning of portfolios and how we execute strategies at this link: https://www.cumber.com/2019-q3-reviews/


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Puerto Rico Governor to Resign, Protesters Warn Successor: ‘You’re Next’

Excerpt from…

Puerto Rico Governor to Resign, Protesters Warn Successor: ‘You’re Next’

By Nick Brown
July 25, 2019

Cumberland-Advisors-Shaun-Burgess-In-The-News
Shaun Burgess of Cumberland Advisors

SAN JUAN (Reuters) – Puerto Ricans danced among the brightly colored houses of San Juan on Thursday after Governor Ricardo Rosselló capitulated to 12 days of protests and announced his resignation, but many in the crowd warned they would reject the person in line to succeed him.

In a sign investors saw Rosselló’s departure as a positive, some of Puerto Rico’s defaulted general obligation bonds traded at their highest prices in three months in the U.S. Municipal Market.

“This kind of helps to eliminate some of the rampant corruption that plagued the commonwealth for decades,” said Shaun Burgess, a portfolio manager at Cumberland Advisors, which holds about $145 million of insured Puerto Rico bonds.

But not all Puerto Ricans were delighted at Rosselló’s ouster.

“He’s taking the fall for a bunch of past governors that put us in this position,” said Ricky Shub, 33. While Shub agreed that it was time for Rosselló to go, he added, “everyone here is right to do what they’re doing, but they should have done it 20 years ago.”

(Reporting by Nick Brown in San Juan, additional reporting by Luis Valentin Ortiz and Marco Bello in San Juan and Karen Pierog in Chicago, writing by Scott Malone and Andrew Hay; editing by Jonathan Oatis, Bernadette Baum and G Crosse)

Read the full article here:  www.usnews.com


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Cumberland Advisors Market Commentary – The People Have Spoken

There comes a breaking point for everything, a moment, an “Arab spring,” when people governed by the callous and corrupt stand up and say enough. For the citizens of Puerto Rico that moment came after the indictment of two former island officials on corruption charges and the release of a private group chat between Governor Ricardo Rosselló and other officials in which their comments were petty, callous, malicious, distasteful, and possibly criminal.

Market Commentary Puerto Rico

Now clearly, corruption isn’t anything new for Puerto Rico. Decades of corruption contributed to the Commonwealth’s record-setting bankruptcy. But in what may be a sign of the times, with sensitivities running high, the comments in those exchanges clearly crossed a line for many and showed a degree of contempt that was inexcusable. Throw in a decades-long recession, control of the Commonwealth government by a federal oversight board, austerity measures (never popular), and continued rebuilding efforts years after a disastrous hurricane season; and it is easy to see how frustrations rose to a boiling point. The island has since bled officials who participated in that group chat, with a number of high-profile resignations.

In a historic moment for the people, protests and other forms of civil unrest have successfully forced the resignation of Governor Rosselló. The people made their voices heard, and the governor was left with few options. I applaud my fellow citizens in the Caribbean. The words we use should matter, in both our civil and political discourse. Governor Rosselló will remain until August 2, when Justice Secretary Wanda Vazquez will take over.

The resignations and chaos have increased political uncertainty and likely prolonged restructuring negotiations. The Federal Oversight and Management Board (FOMB) may have strengthened its position as well. Judge Laura Swain, who is overseeing the island’s bankruptcy proceedings, has imposed a 120-day pause of ongoing litigation to provide time to regain stability and work out a plan to address the suits, as they hinder any conclusion to the broader restructuring effort. The longer-term economic impacts from the unrest are as of yet unknown. An orderly process in filling vacant positions and getting back to the business at hand would minimize longer-term impacts.

In response to the political upheaval and mistrust of Puerto Rican officials, Congressman Sean Duffy, Congresswoman Jenniffer González-Colón, and Senator Rick Scott have asked the president to appoint a federal coordinator to help oversee the continued rebuilding efforts and speed the delivery of federal assistance. We support this move and welcome the transparency the position would bring. More importantly, though, we hope this may mean a brighter future for Puerto Rico. The government should exist to work for the people, not for elected officials or bureaucrats.

Shaun Burgess
Portfolio Manager & Fixed Income Analyst
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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2Q2019 Review: Puerto Rico

The second quarter of 2019 has been a busy one for the Commonwealth of Puerto Rico. Milestones mired in controversy, optimism dampened by frustration, and increasing uncertainty have all been part of the experience.

Market Commentary Puerto Rico

In what may be one of the most significant milestones to date, an agreement was unveiled between the Federal Oversight and Management Board (FOMB) and creditors holding $3 billion of uncontested debt. The $35 billion restructuring agreement encapsulates $18 billion in general-obligation and Commonwealth-guaranteed debt and $16 billion in unsecured creditor claims. Although very tentative and likely to go nowhere, the agreement does provide a starting point in what are sure to be very contentious negotiations. Pushback against the plan has been fierce, with claims of inadequate recoveries and a disparate treatment of creditors. Few apart from the FOMB and the negotiating creditors support the agreement. Recoveries range between 23 to 73 cents on the dollar, depending on the issuing authority and the date debt was issued. One of the most interesting points of the plan is that it provides recoveries on debts the FOMB has claimed are invalid and that it is therefore under no obligation to pay. The catch, though, is that creditors must sign on now or risk a court fight where they may receive nothing. We initially viewed the attempted invalidation of what is now $15 billion of outstanding debt as a negotiating tactic. This restructuring agreement validates that view and is tantamount to forcing creditors to negotiate with a gun to their heads.

On a more positive note, the Puerto Rico Industrial Development Company (PRIDCO) reached an agreement in their Title VI restructuring, and the Title III restructuring of the Puerto Rico Electric Power Authority (PREPA) has seen significant advances, with a restructuring agreement reached between the FOMB and a majority of bondholders, including Assured Guaranty. Whether there is enough support for the plan to move forward is questionable, as MBIA remains a holdout. Any plan will almost certainly have to include MBIA, as it holds a significant portion of the utility’s outstanding debt. An approval by the courts and eventual exit from Title III would be a welcome end to what has been a very long fight.

For all the improving economic metrics and progress we have seen, tremendous uncertainties remain. The US Supreme Court has agreed to hear the FOMB’s case seeking to overturn an earlier appeals court ruling that board members were unconstitutionally appointed and to determine whether any decisions FOMB makes until 15 July can stand. Readers may remember that an appeals court found FOMB members to be federal officials and therefore subject to the Appointments Clause of the US Constitution. The FOMB and federal government seek to have the high court validate their status as territorial officials who are therefore appropriately appointed. An unfavorable outcome would mean that progress becomes murky and mired in litigation. A conclusion to the restructuring of the Commonwealth’s outstanding debt has likely been pushed into 2020.

Because of the risks of acceleration, insured Puerto Rican bonds have lagged the tremendous performance experienced in the broader municipal market. We still believe insured bonds can offer value when you do your homework and pick appropriate structures. We continue to find value opportunistically when supply is available. It remains increasingly important to know what you are buying and to understand the risks of debt acceleration within the insured space.




1Q2019 Review: Puerto Rico

The quarter proved to be a meaningful one for the Commonwealth of Puerto Rico, with the Puerto Rico Sales Tax Financing Corporation (COFINA) finalizing the restructuring of its $17-plus billion in outstanding debt.

Market Commentary Puerto Rico

This stands as the most significant development we have seen in Puerto Rico’s years-long journey, with COFINA representing approximately 24% of the island’s public sector debt. Existing uninsured debt obligations were swapped for new senior lien securities in a process that was messy, complicated, and confusing for many. Bonds insured by Assured Guaranty were accelerated, paying par plus accrued interest to the plan of adjustment’s effective date. As Puerto Rico puts COFINA in its rearview mirror, it now moves on to bigger challenges and unanswered questions.

Next on the agenda for the Federal Oversight and Management Board (FOMB) is the restructuring of the Commonwealth’s general-obligation debt. The FOMB stated in court that it expects to have a plan of adjustment filed by the end of April. It is hard to imagine any proposal being taken seriously by creditors without questions surrounding the validity of debt issued after 2011 being answered. We have written previously about the attempted invalidation of general-obligation debt and the possible implications for the broader municipal market. See http://www.cumber.com/buyer-beware/. It remains to be seen whether this is a strong-arm negotiating tactic or if questions surrounding the debt’s validity will actually get answered in court. Whatever the rationale, the attempted invalidation is something we question, considering that one of the FOMB’s mandates is to regain capital market access.  Who will be left willing to buy the island’s debt at a reasonable yield if the FOMB is ultimately successful?  We do expect this to be a contentious fight, with the outcome shaping not just Puerto Rico’s future but the whole of the municipal market as well.

Overhanging ongoing negotiations are questions regarding the constitutionality of board member appointments to the FOMB. Judge Swain’s prior ruling that board member were properly appointed was overturned February 15th by the US Court of Appeals for the First Circuit. It found that board members were federal officials and thereby not appointed in accordance with the US Constitution’s Appointments Clause. Thankfully, the court chose not to invalidate prior actions by the board or dismiss the Commonwealth’s current Title III proceedings. Although some creditors desired that outcome, the results of such a decision would have been chaotic and meant more time, money, and financial losses for both the Commonwealth and creditors. The federal government now has 90 days to appoint board members legally. The FOMB has chosen to take the question to the Supreme Court, and any action by the federal government before that happens is unlikely.

Assuming the Supreme Court chooses to take the case on, what side it takes remains questionable. If the court sides with the FOMB and determines its members are territorial officials, then things move forward with only a small delay. If the court decides they are federal officials, it makes thing far more complicated. The federal government would have very little time to either confirm existing members or appoint new ones. Considering the high degree of dysfunction at which our elected officials operate, we don’t expect anything to be done until the eleventh hour. Hopefully Washington proves us wrong, but we’re not holding our breath.

We still believe carefully selected insured paper can offer tremendous value for clients and continue to take advantage of the space. However, with the acceleration of insured COFINA debt, we are being cautious as we put money to work. We do not recommend blindly buying insured paper without doing the necessary research into each issue and authority.

Shaun Burgess
Portfolio Manager & Fixed Income Analyst
Email | Bio

___________________________________________________________

Cumberland Advisors invites you to our third annual Financial Literacy Day, to be held April 11, 2019, from 8:30 AM to 4 PM at the Selby Auditorium of the University of South Florida Sarasota-Manatee.
Our focus is “Financial Markets and the Economy,” featuring:
Panels
• The Stock Market
• Health Hunger and Philanthropy
• How the World Looks to Me – A Global Economic Outlook
Special Presentations
• A Conversation with Susan Harper, Canada’s Consul Gen in Fla, on Trade/World Affairs
• Keynote by Gretchen Morgenson, Senior Special Writer in the Investigations Unit at The Wall Street Journal and Former Business and Financial Editor for the New York Times.
We welcome and encourage the participation of our friends, colleagues, and clients. The cost is only $50 to register, and includes coffee, pastries, catered lunch, and a light reception with Gretchen Morgenson. Please reserve your spot soon – we expect a full auditorium. Learn more: https://www.cumber.com/financial-literacy-day/



Buyer Beware

Cumberland Advisors - Shaun Burgess - Portfolio Manager & Fixed Income Analyst

In a move that caught many observers by surprise, the Federal Oversight and Management Board (FOMB), which was created to oversee the restructuring of the Commonwealth of Puerto Rico, has requested that Judge Swain invalidate more than $6 billion of the territory’s debt. The move would affect uninsured general-obligation bonds issued in 2012 and after. The rationale for the FOMB’s argument is that the debt was issued in violation of the island’s constitutional debt limit. While others have called for this move previously, the FOMB has never vocally supported this extreme action until now. The bonds in question were apparently issued in adherence to practices used in prior debt issuances, and their validity came into question only following the island’s historic bankruptcy.

The move raises many questions. How did the island access capital markets if the debt violated the debt limit? Can the debt be invalidated if it was in compliance with practices used at the time and in prior debt issuances? If the calculations that were used were known to be incorrect, is there a case for fraud? Is there more debt the island may seek to invalidate? Is the move in line with the FOMB’s mandate of putting the island on a path to regain market access? How does this development affect other municipalities that may have used creative methods to skirt statutory debt limits? The biggest question, though, is who would be held accountable? It is easy to say that this problem affects only “soulless” hedge funds, but that is not true, especially with regard to bonds issued prior to 2012, when the general-obligation pledge was still rated investment-grade. And in any case, hedge funds bought the Commonwealth’s bonds based on the promise to be repaid. Being forced to take a haircut because of the inability to pay is understandable, but to get nothing because the calculations used were incorrect or inappropriate would be hard to stomach.

Whether Judge Swain agrees to the FOMB’s request remains to be seen, but the attempt raises serious questions about the direction of the FOMB and the broader implications for the $3 trillion municipal bond market.

Shaun Burgess
Portfolio Manager & Fixed Income Analyst
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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4Q2018 Review: Puerto Rico Insured Bond

Cumberland Advisors - Shaun Burgess - Portfolio Manager & Fixed Income Analyst

It has been a busy quarter for the Commonwealth of Puerto Rico. Milestones included a conclusion to the Title VI restructuring of the Government Development Bank (GDB) and a plan for the restructuring of the Puerto Rico Sales Tax Financing Corporation’s (COFINA), as well as the continued rebuilding from the damages wrought by Hurricane Maria and a myriad of other developments. The conclusion of the GDB’s restructuring and the plan of adjustment for COFINA represent the most significant developments we have seen thus far in the Commonwealth’s bankruptcy saga.

The restructuring of COFINA’s debt stands as one of the most significant developments to date and will rank among the largest municipal restructurings in history, at a staggering $17.6 billion. The terms of the plan include COFINA and Commonwealth bondholders splitting sales and use tax revenues to the tune of 53.65% and 46.35%, respectively. Senior bondholders are set to receive 93 and subordinate bondholders 56 cents on the dollar, and both will exchange existing bonds for new senior lien securities backed by their respective portion of the 5.5% sales and use tax. Although the plan obviously offers considerably less for subordinate bondholders than it does for senior debt holders, the proposed workout is an equitable resolution in Cumberland’s opinion for both COFINA and Commonwealth creditors and is less likely to face significant legal challenges that could prolong the agency’s restructuring. Judge Swain’s approval of the plan’s disclosure initiated a creditor support voting process which will culminate in a confirmation hearing set for January 16, 2019, with public commentary included in the proceedings. We look forward to this date as it represents another pivotal moment in the restructuring process. Execution risks remain, as further progress will depend on the outcome of creditor votes as well as Judge Swain’s approval.

A milestone no less important was the closure of the Commonwealth’s first court-authorized workout – the Title VI restructuring of the GDB’s approximately $4 billion of debt. Although a small sum in the totality of the burden facing the Commonwealth, the restructuring still represents a significant step forward. It stands as the only Title VI restructuring thus far and the first of many restructurings we will see in the coming months and years. Bondholders received 55 cents on the dollar in new securities paying a coupon of 7.50% and maturing in 2040. Even with the GDB’s debt restructured, the risk of nonpayment at some point in the future remains high; and the market price on the newly issued securities reflects as much, with a valuation currently in the high $60s. The restructuring of the GDB offers an important lesson to bondholders, in that even securities received from a restructuring can trade to levels which could worsen initial “haircuts”.

Looking ahead, 2019 promises to be an even busier year for the Commonwealth, with the restructuring of Commonwealth-guaranteed debt and numerous agencies including the Puerto Rico Highway and Transportation Authority (PRHTA), the Puerto Rico Aqueduct and Sewer Authority (PRASA), and the Puerto Rico Electric Power Authority (PREPA) on the agenda, along with a number of outstanding legal challenges and unfunded pension liabilities still to address. We expect the focus of the Financial Oversight and Management Board (FOMB) to remain the restructuring of COFINA and Commonwealth-guaranteed obligations as these represent the largest portion of the Commonwealth’s total outstanding debt, not including unfunded pension obligations, and smaller easier to restructure agencies.

We have hit some important milestones in 2018 and think that 2019 will bring more. We still believe that carefully selected insured paper can offer terrific value for clients at tax-exempt yields north of 4%. We do not recommend blindly buying insured paper but instead carefully researching individual issues.

Shaun Burgess
Portfolio Manager & Fixed Income Analyst
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Puerto Rico Oversight Board, Rosselló tussle over Christmas bonus

Excerpt below from “Puerto Rico Oversight Board, Rosselló tussle over Christmas bonus”
By Robert Slavin, November 15 2018, 3:27pm EST

Cumberland-Advisors-Shaun-Burgess-In-The-News
Shaun Burgess of Cumberland Advisors

Puerto Rico’s Christmas bonus is again under the spotlight as the Oversight Board pressures Gov. Ricardo Rosselló to identify spending reductions to offset the cost of his plan to pay the annual benefit.

The clash between the board and Rosselló comes more than two years after Puerto Rico stopped paying its general obligation debt. Since July 2016 Puerto Rico has defaulted on most of its other bonds. The continuation of the Christmas bonus has been a sore point for some bondholders.

Puerto Rico’s government must live within its budget regardless of its cash balances, Oversight Board Executive Director Natalie Jaresko said in her letter. A failure to cut the bonus, other payroll, or other operating spending sufficiently before the end of the current fiscal year may “imperil… the commonwealth’s ability to make payroll for its employees.”

Cumberland Advisors Portfolio Manager Shaun Burgess said, “It doesn’t surprise me that the commonwealth is moving ahead with paying the bonuses. I suspect the commonwealth’s elected officials would have done whatever is necessary to pay them since not doing so would have been a deeply unpopular move.” Cumberland owns insured Puerto Rico bonds.

The Puerto Rico Oversight, Management, and Economic Stability Act, which governs the board’s capabilities, says that the board is to review the compliance of the local government’s actual spending with the board’s approved budget. If the board finds that it is inconsistent, the act says the board is to inquire with the government for more information about the spending and future spending.

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