Please spare us more psychobabble over Puerto Rico

Submitted: Sep 30, 2017
By: 
Badlands Journal editorial board

 As ideologies right and left contend on the mainland airwaves for the best response to the crisis in Puerto Rico, and the president with his genius for fanning the flames of resentment has managed once again to outrage decency, let us for a moment look for some other explanation than the "fragile ego" or similar psychobabble hornswoggle.

Another hypothesis: the delay is a Wall Street shakedown.

-- blj

 

On top of that, business-friendly tax policies for some of the companies that remained on the island allowed multinational giants to pay tax rates of little more than 1%. Microsoft, for example, packages and ships its products from Puerto Rico. Thanks to these policies, it enjoyed a 1.02% tax rate in 2011.

What you end up with is an island raising debt from investors while bringing in little revenue to pay them back. -- Linette Lopez, Business Insider, Sept. 26, 2017

 


9-28-17

The Intercept 

Puerto Rico Rejects Loan Offers, Accusing Hedge Funds Of Trying To Profit Off Hurricane

David Dayen

https://theintercept.com/2017/09/28/puerto-rico-rejects-loan-offers-accusing-hedge-funds-of-trying-to-profit-off-hurricanes

PUERTO RICO HAS rejected a bondholder group’s offer to issue the territory additional debt as a response to the devastation of Hurricane Maria. Officials with Puerto Rico’s Fiscal Agency and Financial Advisory Authority said the offer was “not viable” and would harm the island’s ability to recover from the storm.

The PREPA (Puerto Rico Electric Power Authority) Bondholder Group made the offer on Wednesday, which included $1 billion in new loans, and a swap of $1 billion in existing bonds for another $850 million bond. These new bonds would have jumped to the front of the line for repayment, and between that increased value and interest payments after the first two years, the bondholders would have likely come out ahead on the deal, despite a nominal $150 million in debt relief.

Indeed, the offer was worse in terms of debt relief than one the bondholder group made in April, well before hurricanes destroyed much of the island’s critical infrastructure.

Puerto Rico’s Fiscal Agency and Financial Advisory Authority suggested that profit motive rather than altruism was the bondholder group’s real goal. “Such offers only distract from the government’s stated focus and create the unfortunate appearance that such offers are being made for the purpose of favorably impacting the trading price of existing debt,” the agency said in a statement.

Thomas Wagner of Knighthead Capital Management, one of the members of the bondholder group, admitted as much on Bloomberg TV yesterday, saying “What we’re trying to do is lend where our investors are not disadvantaged.” He added that the loan could be a “win-win” for the utility and the bondholders, “where the capital is not expensive.”

If the idea was to increase the value of PREPA bonds, that hasn’t really happened. The bonds were trading at 43.4 cents on the dollar Wednesday according to Bloomberg. Prices were at 52.5 cents in late August.

Hurricane Maria, and Irma before it, left Puerto Rico in shambles, particularly the electric utility. The island’s 3.4 million residents were without power in the immediate aftermath of the storm, and most continue without power today. PREPA has limited ability to restore the grid, given the island’s cash-strapped status.

Creditor groups should “refrain from making unsolicited financing offers at the expense of the people of Puerto Rico,” the fiscal agency said.

Despite growing calls for debt relief, no bondholder has said they would supply it in the days following the storm, nor have creditor lawsuits been withdrawn. However, David Tepper, the hedge fund manager behind Appaloosa LP, did pledge $3 million for hurricane relief from his family charity and the hedge fund. The money would go to Feeding America, a food bank network.

Tepper’s Appaloosa LP is the only non-bank creditor to so much as publicly donate to disaster recovery efforts. Three banks who hold Puerto Rican debt have donated $1.25 million.

The list of creditors:

Angelo, Gordon & Co. – Member of Prepa Bondholders Group, offered $1.85 billion in DIP loans and $150 million in debt relief

Appaloosa Management – Offered $3 million for hurricane relief

Archview Investment Group – no response

Ambac – no response

Aristeia Capital – no response

Arrowgrass Capital Partners – no response

Assured Guaranty – Member of Prepa Bondholders Group, offered $1.85 billion in DIP loans and $150 million in debt relief

Aurelius Capital Management – no response

Avenue Capital Group – no response

BlueMountain Capital Management – Member of Prepa Bondholders Group, offered $1.85 billion in DIP loans and $150 million in debt relief

Brigage Capital Management – no response

Candlewood Investment Group – no response

Canyon Capital Partners – no response

Carmel Asset Management – no response

Centerbridge Partners – no response

Cyrus Capital Partners – no response

Citibank – Donated $250,000 to the Red Cross.

D.E. Shaw – no response

DoubleLine Capital – no response

Farallon Capital Management – no response

FGIC – no response

Fir Tree Partners – no response

Fortress Investment Group – no response

Franklin Templeton Investment Co. – Member of Prepa Bondholders Group, offered $1.85 billion in DIP loans and $150 million in debt relief

Fundamental Advisors – no response

Golden Tree Asset Management – no response

Goldman Sachs – Gave $500,000 to “organizations assisting in immediate search, clean-up and recovery efforts” in the Caribbean after Hurricane Irma.

Highbridge Capital Management – no response

Knighthead Capital Management – Member of Prepa Bondholders Group, offered $1.85 billion in DIP loans and $150 million in debt relief

Mackay Shields – declined to comment

Maglan Capital – no response

Marathon Asset Management – Member of Prepa Bondholders Group, offered $1.85 billion in DIP loans and $150 million in debt relief

MatlinPatterson Global Advisors – no response

MBIA – no response

Meehan Combs – fund shut down

Merced Capital – no response

Monarch Alternative Capital – no response

Och-Ziff Management – no response

Oppenheimer Funds Co. – Member of Prepa Bondholders Group, offered $1.85 billion in DIP loans and $150 million in debt relief

Perry Capital Management – fund shut down

Principal Global – no response

Redwood Capital Management – no response

Scotiabank – gave $500,000 for Hurricane Irma relief in the Caribbean.

Sound Point Capital Management – no response

Stone Lion Capital Partners – no response

Syncora – no response

Taconic Capital Partners – no response

Tilden Park Capital Management – no response

Vårde Partners – no response

Whitebox Advisors – “We have a policy of not discussing Puerto Rico or any securities in which we are involved.”

   

 

9-26-17

Business Insider

Trump's Puerto Rico tweets prove that Wall Street is deep in his head

Linette Lopez

http://www.businessinsider.com/trump-puerto-rico-wall-street-tweets-2017-9

<!--[if !supportLists]-->·         <!--[endif]-->President Donald Trump's first priority when it comes to Puerto Rico is reminding it of all the debt it owes Wall Street.

<!--[if !supportLists]-->·         <!--[endif]-->This is rich, considering how much Trump loves debt and bankruptcy.

<!--[if !supportLists]-->·         <!--[endif]-->Puerto Rico's debt problems have a long history involving several government missteps.

Reading tweets from President Donald Trump has become less an exercise in policy and more a glimpse at what or who is driving the information the impressionable president is taking in.

That is how we know, based on three tweets on Monday evening about Puerto Rico, that Wall Street owns Trump right now.

Here are the tweets, in case you missed them:

"Texas & Florida are doing great but Puerto Rico, which was already suffering from broken infrastructure & massive debt, is in deep trouble.

"It's old electrical grid, which was in terrible shape, was devastated. Much of the Island was destroyed, with billions of dollars ... owed to Wall Street and the banks which, sadly, must be dealt with. Food, water and medical are top priorities — and doing well. #FEMA"

You'll notice the "top priorities" were mentioned only after the president pointed out Puerto Rico's massive debt, which is owned by a bunch of investors — especially the powerful hedge funds Trump bashed during his campaign.

There are some other non-debt problems Puerto Rico is facing that the president didn't mention:

<!--[if !supportLists]-->·         <!--[endif]-->Puerto Rico's agriculture secretary, Carlos Flores Ortega, says Hurricane Maria destroyed as much as 80% of the territory's crop value.

<!--[if !supportLists]-->·         <!--[endif]-->The Fitch research group BMI estimates the country's gross domestic product will take a 3.5% hit in 2017 and a 2.1% hit in 2018.

<!--[if !supportLists]-->·         <!--[endif]-->The catastrophe-modeling firm AIR Worldwide estimates up to $85 billion in insured damage, to say nothing of uninsured damage.

Trump opted not to tweet about those disastrous humanitarian and economic situations, but the hedge funds, jockeying for a piece of the $70 billion in debt the territory owes, got a shout-out. It seems Wall Street's priorities are at the top of the president's mind right now.

Good for them. What they're in the midst of is not a pretty fight, and it's not an orderly fight. In fact, it's probably a fight that shouldn't exist.

How Puerto Rico's debt got here

The debt problems Trump tweeted about have a long and sordid history.

In January, Treasury Secretary Steve Mnuchin, formerly of the investment bank Goldman Sachs, said during his confirmation hearing that his predecessor, Jack Lew, warned him to keep an eye on a Puerto Rico bankruptcy.

He said that while answering a question from Democratic Sen. Bill Nelson of Florida, who bemoaned the "tragic situation" in Puerto Rico caused "by quirks in the law that I do not understand how they got that way."

"We have to have a plan," Nelson said.

Of course, Mnuchin has no plan for Puerto Rico, despite his assurances at the time. There's just a chaotic debt-restructuring process and a bunch of rich, impatient Wall Streeters.

How the island got into this situation is an interesting story. It was a combination of federal government negligence, a regressive tax structure, and strange legal footing that savvy investors were able to take advantage of.

In 2006, a tax break for manufacturers who set up shop on the island was allowed to expire. Employment fell by about 10% between 2006 and 2010, according to a report by the New York Federal Reserve.

With revenue slowing, Puerto Rico decided to raise billions in debt to finance its government operations. Investors were willing to loan Puerto Rico money, despite the economic warning signs, because it offered high yields, and the island's bonds had attractive tax breaks.

"It was politically favorable for the Commonwealth because they were able to do these things" — like issuing bonds — "and not put the burden on the residents," David Fernandez, a public finance lawyer at Buchanan, Ingersoll & Rooney, told Business Insider in 2015. "They kept doing it and doing it, and the market kept buying and buying. Who wouldn't do that?"

On top of that, business-friendly tax policies for some of the companies that remained on the island allowed multinational giants to pay tax rates of little more than 1%. Microsoft, for example, packages and ships its products from Puerto Rico. Thanks to these policies, it enjoyed a 1.02% tax rate in 2011.

What you end up with is an island raising debt from investors while bringing in little revenue to pay them back.

The problems with this started to surface in 2015, as did the fact that Puerto Rico didn't have a great way to deal with them. You see, unlike, say, Detroit, Puerto Rico — a US territory — doesn't have the option of using the bankruptcy process to discharge its debt.

So what we have is a chaotic government restructuring with Wall Street hedge funds looking to jump each other in line for payment. And those guys don't complain quietly.

I hope you can see the irony of someone who has called himself the "king of debt" and whose companies have gone through bankruptcy six times touching on this topic. During the 2009 bankruptcy of Trump Entertainment Resorts, the company that held his Atlantic City casinos, Trump argued against a clean restructuring and for keeping debt on the books.

Then he and Ivanka basically sacked the company.

I guess he can't sack Puerto Rico, so it'll have to pay up.

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