NEW YORK--(BUSINESS WIRE)--The number of hedge funds trading Puerto Rico (PR) bonds is increasing, although exposure to specific credits has become bifurcated by whether they support or oppose the new Public Corporation Debt and Enforcement Recovery Act, according to a new report from Fitch Ratings.
Fitch estimates there are now over 60 alternative fund managers holding more than $16 billion of the island's debt in aggregate. Some of these fund managers support the Recovery Act in order to ring-fence commonwealth obligations from PR public corporations while others are suing to annul it.
On the traditional side, total U.S. mutual fund ownership of PR bonds has declined to 52% of the $65.1 billion market. But the remainder is concentrated among two large U.S. fund managers who together hold more than $23 billion of PR bonds.
On contrast, Fitch-rated U.S. closed-end funds across 14 other fund managers have reduced their PR holdings on average by 65% since summer of 2013. Remaining exposure is being held in sales tax and general obligation issuers, half of which is insured.
Fitch estimates that over $23 billion, or 36% of the $65.1 billion Puerto Rico bond market currently carries monoline credit protection, which provides a secondary source of repayment.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: Big Changes for Puerto Rico Bond Market (Shift to New Investors Creates Bifurcated Trades)