Franklin Templeton's Rafael Costas: Puerto Rico's Default Probability is Low, More Likely to Get Downgraded; Bonds are Being Unjustly Punished in the Markets

In the video below, Rafael Costas, Co-Director of Franklin Templeton's Municipal Bond Department (who owns Puerto Rico's bonds), explained why he thinks Puerto Rico's default risk is low and being mispriced in the market. But with its bonds currently rated at investment grade, he thinks a "potential negative event" could be a credit rating downgrade, not default.

*"We feel that at current levels Puerto Rico bonds have been oversold."

*There has been tax reform and pension reform.

*"The Puerto Rican constitution states that the first lien on their unrestricted (?) revenues is to be paid to bondholders in interest for all the debt outstanding"

*"Any discussion about bankruptcy in the press and media is just wrong. The potential negative event that could be happening is not a bankruptcy, rather it could be a downgrade. And not a default as many are speculating, it would be very unwise for an issuer like Puerto Rico who has been so dependent on the debt markets and will be dependent on the debt markets in the future, that it would not be a very idea for them to have a default on their record. It would be very hard to borrow money...:

*"While we feel Puerto Rico is facing a difficult situation, we feel that their bonds are being unjustly punished in the markets."

*"Let us remember that we are still talking about an investment grade rated issuer that happens to be trading at distressed levels."

Tell that to the credit default swaps! -> Credit Default Swaps Say Puerto Rico Has the Highest Default Probability in the World Right Now; The S&P Municipal Bond Puerto Rico Index is Down 21.23% From a Year Ago

Here's are Puerto Rico's financials.
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