Puerto Rico: Vulture Funds to commit murder while judge approves deal to restructure island’s debt
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AMY GOOD MAN: We end today’s broadcast with the latest news. Juan?
JUAN GONZALEZ: Well, a federal judge yesterday approved a plan for Puerto Rico to restructure some of its debt that would require Puerto Rico to pay $32 billion over 40 years. Critics say the deal will allow the vulture funds to make huge profits by buying up that debt. Some of these vulture funds include public employee pension funds and the mutual funds of Harvard, Princeton, and Yale.
AMY GOOD MAN: 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 impact on public services. But she said in her decision: “[T]The court is not at liberty to dictate its own view of what the optimal settlement of the litigation might have been.”
Juan, you have followed these developments closely. Explain the importance of this decision.
JUAN GONZALEZ: Well, this is Puerto Rico’s first legally sanctioned settlement – of Puerto Rico’s $74 billion debt. That’s only about $17 billion, but it’s the bulk of the debt that COFINA, or the debt covered by the Puerto Rico sales tax. As most observers know, it’s a terrible decision for the people of Puerto Rico, because while it allows these bondholders a discount of about 32 percent, it basically kicks the can on the street and lengthens the length of newly issued bonds since 40 years. And then the senior bondholders, who are the big players — and many of them hedge funds — will only get their capital cut by about 7 percent, while the junior bondholders, who are basically investors, small investors from Puerto Rico, will have wiped out about half of their capital.
And it’s important to understand who benefits. It’s vulture money again. There was a report from the Committee on the Elimination of Illicit Debts that analyzed some of the debtors. For example, there is the Baupost Group in Boston, a hedge fund owned by Seth Klarman, who has $900 million of it COFINA Debts that this settlement has. Their big investors — well, some of their big investors are the Harvard, Yale, and Princeton mutual funds. Then there’s GoldenTree Asset Management, which has $2 billion of it COFINA Debt, $400 million that they acquired after Hurricane Maria when Puerto Rico was in debt – you could get it for pennies on the dollar. And now they’re going to make a colossal murder of the fact that they’re getting 93 cents on the dollar for it COFINA Fault. And then there’s Tilden Park Capital, which is run by Josh Birnbaum, a former Goldman Sachs CEO. You have $950 million COFINA Fault. You will commit murder. These last two, many of them have investments from public employee pension funds, in New York, in Illinois, pension funds, in Texas, Los Angeles County Funds. These are the pension funds that provide the money for the vulture funds that are now reaping the benefits.
Even Antonio Weiss, who was President Obama’s top man, who developed it and basically enforced it PROMESA Bill, criticized this deal. He said in an article in Bloomberg News a few months ago: “It will only be a matter of time before the Commonwealth defaults again or cuts pension payments to more than 325,000 workers.”
It is – unfortunately, Judge Swain felt that she had no legal authority to overrule this. But it does mean that if this is the signal for where the rest of Puerto Rico’s debt settlement is going, the vulture funds and the hedge funds will get away with murder, and the people of Puerto Rico will once again be left with increased thrift will.
AMY GOOD MAN: And again explain what COFINA means.
JUAN GONZALEZ: COFINA is the sales tax agency created by Puerto Rico. When it couldn’t legally issue any more debt, it basically created a separate agency and deducted sales taxes from Puerto Rico to guarantee the debt to bondholders, which is perhaps why Puerto Rico has the highest sales tax in the United States: 11- currently one and a half percent.
AMY GOOD MAN: Well, we’ll follow up on that. And all this happens after Hurricane Maria.
JUAN GONZALEZ: Right, with the money the federal government is giving Puerto Rico to rebuild, no doubt to pay some of that debt.
AMY GOOD MAN: Will go to the Vulture Funds.
JUAN GONZALEZ: Yes.
AMY GOOD MAN: Well, to see all of our coverage of Puerto Rico, you can go to demokratienow.org.
A belated Happy Birthday to Hugh Gran.
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