Puerto Rico: Vulture Funds to Make a Killing as Judge Approves Deal to Restructure Island’s Debt

StoryFebruary 06, 2019
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A federal judge has approved a plan for Puerto Rico to restructure a portion of its debt which would require Puerto Rico to pay $32 billion over 40 years. Critics say the deal will allow vulture funds to make huge profits by buying up those debts. Several of those vulture funds include public employee pension funds and the investment funds of Harvard, Princeton and Yale. Judge Laura Taylor Swain, who held a hearing on the proposed deal last month, echoed critics’ concerns about Puerto Rico’s ability to make the payments and the likely effects on public services. However, she said in her decision, “[T]he Court is not free to impose its own view of what the optimal resolution of the dispute could have been.”

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Transcript
This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: We end today’s broadcast on the latest news. Juan?

JUAN GONZÁLEZ: Well, a federal judge approved a plan for Puerto Rico yesterday to restructure a portion of its debt which would require Puerto Rico to pay $32 billion over 40 years. Critics say the deal will allow vulture funds to make huge profits by buying up those debts. Several of those vulture funds include public employee pension funds and the investment funds of Harvard, Princeton and Yale.

AMY GOODMAN: Judge Laura Taylor Swain, who held a hearing on the proposed deal last month, echoed critics’ concerns about Puerto Rico’s ability to make the payments and the likely effects on public services. But she said in her decision, “[T]he Court is not free to impose its own view of what the optimal resolution of the dispute could have been.”

Juan, you’ve been following these developments closely. Explain the significance of this decision.

JUAN GONZÁLEZ: Well, this is the first legally approved settlement of the Puerto Rico—of Puerto Rico’s $74 billion in debt. This only involves about $17 billion, but it’s the largest portion of the debt, the COFINA, or the debt backed by sales tax of Puerto Rico. It’s a terrible decision, most observers know, for the people Puerto Rico, because even though it allows a haircut for these bondholders of about 32 percent, it basically kicks the can down the road and extends the length of the new bonds that will be issued for 40 years. And then the senior bondholders, which are the big players—and many of them hedge funds—will only have a reduction of their principal of about 7 percent, while the junior bondholders, which are basically investors, small investors from Puerto Rico, will have about half of their principal wiped out.

And the important thing to understand about this is who is benefiting. It’s vulture funds once again. There was a report by the Committee for the Abolition of Illegitimate Debt that analyzed some of the debt holders. For instance, there’s the Baupost Group in Boston, a hedge fund run by Seth Klarman, that has $900 million of this COFINA debt that’s got this settlement. Their big investors—well, several of their big investors are the investment funds of Harvard, Yale and Princeton. Then there’s GoldenTree Asset Management, which has $2 billion of this COFINA debt, $400 million of which they acquired after Hurricane Maria, when Puerto Rico debt was—you could get it for pennies on the dollar. And now they’re going to make a huge killing on the fact that they’re getting 93 cents on the dollar for this COFINA debt. And then there’s Tilden Park Capital, which is run by Josh Birnbaum, who used to be a managing director of Goldman Sachs. They have $950 million of COFINA debt. They’re going to make a killing. These last two, many of them have investments from public employee pension funds, in New York, in Illinois, retirement funds, in Texas, Los Angeles County funds. These are the pension funds that are providing the money for the vulture funds now that are reaping the benefits.

Even Antonio Weiss, who was President Obama’s point man, who developed and basically pushed through the PROMESA bill, has criticized this deal. He said, in an article in Bloomberg News a couple of months ago, “It will just be a question of time before the commonwealth is forced to default yet again or curtail pension payments to more than 325,000 workers.”

So, it is—unfortunately, Judge Swain felt that, legally, she did not have the authority to override this. But it does mean that if this is the signal of where the rest of the settlement of the Puerto Rico debt is going toward, the vulture funds and the hedge funds are going to walk away with killings, and the people of Puerto Rico are going to be left, once again, with increased austerity.

AMY GOODMAN: And again, explain what COFINA means.

JUAN GONZÁLEZ: COFINA is the sales tax authority that Puerto Rico created. Basically, when it could not legally issue more debt, it created a separate authority and siphoned off the sales taxes of Puerto Rico to guarantee the debt to bondholders, which is why Puerto Rico has perhaps the highest sales tax in the United States: 11-and-a-half percent right now.

AMY GOODMAN: Well, we will continue to follow this. And this all happening after Hurricane Maria.

JUAN GONZÁLEZ: Right, using the money that the federal government is giving to Puerto Rico for reconstruction, to help pay a portion of this debt, undoubtedly.

AMY GOODMAN: Will go to the vulture funds.

JUAN GONZÁLEZ: Yes.

AMY GOODMAN: Well, to see all our coverage on Puerto Rico, you can go to democracynow.org.

A belated happy birthday to Hugh Gran.

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