DCI Group Managing Partner Justin Peterson recently spoke at the Smith’s Yield Municipal Bond Conference in Greenwich, Connecticut, where he joined a panel to explore lessons learned from the default of the Commonwealth of Puerto Rico. Serving as a member of the Puerto Rico Financial Management and Oversight Board from 2020 to 2023, Justin built strong relationships across the island while helping Puerto Rico responsibly emerge from bankruptcy.

Justin was joined on the panel by Foundation Credit Founder and CEO Hector Negroni, Faegre Drinker Partner Laura Appleby, and Bank of America’s Head of Municipal Trading Jude Arena. The panel was moderated by Ian Rogow, Director and Co-Head of Municipal Bond Research at BofA Securities.

Justin and others on the panel discussed the implications of the ongoing restructuring of Puerto Rico’s debt on future potential distressed municipal debt situations. In particular, Justin emphasized how important it is for the island to regain the confidence of investors and convince them that Puerto Rico is once again a responsible borrower and steward of capital.

To move forward, the Puerto Rico Electric Power Authority (PREPA) must emerge from bankruptcy and draw new investment to the island’s energy infrastructure that positions residents and businesses for a strong future. He also said the Oversight Board and the Commonwealth need to put the people first. The island should prioritize reliability and affordability by using American natural gas to power Puerto Rico’s energy grid, rather than investing in speculative energy projects that rely on newer and costlier technologies.

Panelists also had a discussion about the failures of the current Oversight Board, including frivolous spending on consultants, and why Justin ultimately resigned from the board last year. Eight years after the Puerto Rico Oversight, Management, and Economic Stability Act of 2016, there’s unfortunately still no end in sight.

As other municipalities across the U.S. show signs of financial pressure after years of low interest rates and strong economic growth, the experience of Puerto Rico is instructive. Municipal defaults are inherently political, and investors should be aware the political landscape is often as important as the legal entitlement of a bond.