Turnaround Investing Blog

George Putnam, one of the country's leading turnaround and distressed investing professionals, shares his timely insight on the economy and turnaround investing opportunities.

Bankruptcy/Chapter 11 / Bonds

Puerto Rico Government Bankruptcy: Uncertainty But Also Investing Opportunity

Excerpted from the June 2017 Issue

Puerto Rico opened a new “chapter” in distressed securities investing when it filed for court protection in early May. However, in this case it is not a chapter of the bankruptcy code such as Chapter 11 (which generally applies to companies) or Chapter 9 (which applies to municipalities). Because Puerto Rico is an unincorporated territory of the U.S., it was not eligible for traditional bankruptcy protection. Instead it filed under a new statute that was passed last year by Congress primarily to deal with the island’s problems. 

After years of economic decline, Puerto Rico is now in default on an estimated $74 billion of bond debt. On top of that, the Commonwealth has approximately $49 billion of pension obligations and an ongoing need for funds to provide basic government services. Because of special tax law provisions that exempt the territory’s debt from not only federal taxes but also state taxes in every state, the bonds are widely held by investors across the country. Since the legal action is under a new law that has never been tested, there is tremendous uncertainty about how much creditors will recover and how long the process will take.    

Distressed bond investors seem to be favoring either the territory’s general obligation (or “GO”) bonds or its bonds backed by sales tax revenues (known as “COFINAs”) both currently trading around 50 cents on the dollar, and there are many other Puerto Rican bonds trading at even lower levels. But there may be opportunities for stock investors to profit from the island’s restructuring as well, perhaps with less downside risk than in many of the bonds.  

Our most recent Turnaround Letter details four public companies based in Puerto Rico that could benefit from stabilization in the island’s finances and an additional three three major insurance companies with exposure to Puerto Rican debt. Learn more about these contrarian Puerto Rico investing opportunities.

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Amazon = US GDP 1970

Amazon joined Apple in reaching a $1 trillion market capitalization. $1 trillion is about the same as the total value of New York City property and the total value of loans at JP Morgan, the nation’s largest bank in terms of assets. Jeff Bezos’ $160 billion stake would place him (personally) as the #33 largest company in the S&P 500 in terms of market cap, next to Coca-Cola, Disney and Netflix. We aren’t bold enough to predict whether the shares will continue upwards or if they are in a bubble reaching maximum inflation. Setting aside for a moment their investment prospects, let’s admire the truly remarkable milestone that these two companies have reached. Read More.

EV/EBITDA: What Is It & Why Are We Using It More?

In reading recent editions of The Turnaround Letter, you have probably noticed that we are increasingly using EV/EBITDA as a valuation measure, rather than the better-known price/earnings multiple.  We thought it might be useful to describe this measure and why we like it.

Read More.

Turnaround Letter Stock Pick Named Top Performer of 2017

 

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What Last Year's Top Stock Pickers Are Buying in 2018

 

This Forbes write-up follows up on the recent Top Stock Tips report--naming The Turnaround Letter's Crocs recommendation the top performer of 2017: With 90% gains, CROX beat out 100 other investment ideas included in the report; and the stock continues to have value investing appeal, according to Putnam.

 

George notes, "We see additional upside for the stock in 2018 as management's efforts continue to bear fruit, though the gains will likely be more muted than we saw in 2017."