In Short: Puerto Rico, as expected, files for bankruptcy-like proceedings

05-04-2017

Wednesday’s decision by Puerto Rico to seek Title III bankruptcy-like relief in federal court was largely a non-event for the market as it was expected this would occur in early May. The U.S. territory had been given time to reach a voluntary restructuring of its debts outside of court, but the likelihood it would be successful at doing so was perceived as very low. Given Puerto Rico’s prolonged economic woes, we have long minimized or completely avoided Puerto Rico holdings in our municipal bond funds. Our only exposure is limited to the Puerto Rico Electric Power Authority (see below), which in April reached a separate agreement with bondholders to restructure its debt and thus is expected to be unaffected by yesterday’s move.

As of March 31, 2017, Federated Municipal High Yield Advantage Fund held $5,060,000 of Puerto Rico Electric Power Authority bonds, representing 0.8% of the fund’s total assets. Federated Muni and Stock Advantage Fund held $948,750 of the same bonds, representing 0.1% of the fund’s total assets.