Rally in Muni Bond Puerto Rico Index Benefitting Two High-Yield ETFs

Based on Yahoo Finance performance figures, SHYD has returned 3.06% year-to-date and 2.77% within the past year. As for HYD, it has returned 3.62% YTD and 4.81% the past year.

The country of Puerto Rico was already saddled by debt, but last year’s devastation brought forth by Hurricane Maria only exacerbated their financial situation, among other things. In order to pay its bills, the government of Puerto Rico was already borrowing insurmountable amounts of money, but in the wake of the country’s rebuilding, it appears the country may be getting the assistance it desperately needs.

“More recently, there’s been good dialogue between the government of Puerto Rico and creditors about the potential for restructuring,” Michael Cohick, Senior ETF Product Manager at VanEck, told ETF Trends.

Creditors Approve Puerto Rico Bond Restructuring

Creditors recently approved a plan to restructure Puerto Rico’s debt issues from the country’s insolvent Government Development Bank. It’s the first debt restructuring under the 2016 Puerto Rico Oversight, Management, and Economic Stability Act, which was originally designed to help alleviate the country’s $120 billion debt and pension liabilities.

Since May 2017, Puerto Rico has been attempting to restructure its debt through a combination of filing bankruptcy via the U.S. court system and making deals with creditors. Final approval for the debt restructuring, expected around Nov. 6, rests in the hands of Puerto Rico’s federally appointed financial oversight board and U.S. Judge Laura Taylor Swain.

Looking at the fine print of the restructuring deal, the GDB would transfer loan portfolios, real estate assets and cash to a GDB Debt Recovery Authority portions to help pay back the $4 billion of debt it owes. In turn, the GDB Debt Recovery Authority would issue new bonds backed by a statutory lien on the transferred assets equal to 55% of the debt owed.

For more trends in fixed income, visit the Fixed Income Channel.