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The Bond Buyer: Michael Ginestro was quoted in the article, “Rosselló’s Election as Puerto Rico Governor Called Positive for Bondholders”

“Rosselló’s Election as Puerto Rico Governor Called Positive for Bondholders,” by Robert Slavin, The Bond Buyer.
The election of Ricardo Rosselló Nevares as Puerto Rico’s next governor is positive for bondholders, some analysts said.
In Tuesday’s contest Puerto Rico’s voters gave Rosselló 41.2% of their votes, David Bernier 38.9%, Alexandra Lúgaro 11.1%, and the balance to other minor party and unaffiliated candidates.
Rosselló is a member of the New Progressive Party, Bernier is part of the Popular Democratic Party, and Lúgaro is unaffiliated. The PDP has held Puerto Rico’s governorship and a majority of seats in the commonwealth’s Senate and House of Representatives for the last four years.
The PDP and the NPP are the dominant political parties in Puerto Rico. The PDP is in favor of Puerto Rico’s government retaining its current status as a “commonwealth” rather than be a state, though some of its members want to modify the commonwealth status. The NPP is in favor of Puerto Rico becoming a state.
“Rosselló’s winning the governorship in Puerto Rico is bullish for Puerto Rico GO bondholders,” said Michael Ginestro, Bel Air Investment Advisors head of municipal credit research. “Rosselló has expressed highly bondholder friendly sentiments. He said he favors paying bond-holders interest if they agree to wait longer for principal payments. That’s markedly different from the Garcia Padilla administration, which has defaulted on $1.8 billion of debt-service costs.
“The recovery plan adopted by the PROMESA board will likely be written by, and generally be consistent with the priorities of the new governor,” Ginestro continued.
Since at least Oct. 10 Puerto Rico’s GO bond yields have been rallying on the secondary market. Puerto Rico’s 2014 GO bond with a maturity in 2035 was sold on Oct. 10 at 65.5 cents on the dollar but had risen to 71.5 cents as of late Wednesday, according to data from IHS Markit. The rally is because Rosselló has spouted bondholder friendly rhetoric, wrote Municipal Market Analytics partner Matt Fabian.
“Because MMA continues to believe that the fiscal plan ultimately adopted by the PROMESA board will be written by, and generally consistent with the general priorities of whatever administration sits in [the governor’s office] at the time, who exactly is the governor actually matters quite a bit,” Fabian continued. “This is thus a crucial election with respect to bondholder recoveries.”
However, Fabian had suggested that if the price went above 70 cents on the dollar bondholders should sell for cash since the debt restructuring will likely involve a payout in Puerto Rico certificates. Cash is much better than these, he said.
Compared to Ginestro and Fabian, Alliance Bernstein director of municipal credit research Joseph Rosenblum was more skeptical about the governor’s influence. “I believe that PROMESA will be driving the process rather than the governor.”
Hector Negroni, partner at Fundamental Advisors, said as an investor and advocate of transparent and responsible public finance markets, he welcomes the change in government. “The return of the rule of law and sound governance combined with the new administration’s growth agenda, will restore credibility, pride and prosperity to my fellow American citizens living in Puerto Rico,” he said.
Bernstein said an important “question [was] how a Republican led Congress and president will react to requests for additional funding, especially in the area of healthcare.”
Writing before the election, Fabian also said that he was skeptical that “even a half-Democratic Congress will find the means to afford tens of billions of dollars in incremental aid (and/or guaranties) for the commonwealth.”
On Tuesday NPP member Jenniffer González Colón was elected resident commissioner.
The NPP also gained control of the Puerto Rico Senate and House of Representatives. In the Senate that has been seated since January 2013 the PDP has had 18 members, the NPP has had eight members and the Independence Party has had one member. In the Puerto Rico House of Representatives the PDP has had 28 members and the NPP has had 23 members.
While the race outcomes were not yet clear, on Wednesday afternoon it appeared that in the Senate there will be 19 NPP members, six PDP members, one Independence Party member, and one unaligned member. In the House, it appears that the NPP will have about 33, the PDP will have 15, and the Independence Party will have one. As of early Wednesday afternoon, there were two races that were too close to call in the House.

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