Puerto Rico, facing absolute devastation after Hurricane Maria barreled through last week, desperately needs immediate funding to restore critical infrastructure, particularly its hobbled electric grid. The entire island — home to over 3.5 million American citizens, roughly equivalent to the state of Connecticut — lost power, and satellite imagery shows how little electricity has come back. This affects not only electricity and telecommunications service but access to clean water, as many pumping stations run on the same grid.
A group of bondholders, who own a portion of Puerto Rico’s massive $72 billion debt, has proposed what they are calling relief — but in the form of a loan. So they’re offering a territory mired in debt the chance to take on more debt.
The announcement came after The Intercept spent two days reaching out to 51 of Puerto Rico’s known creditors, asking them if they would support a moratorium or cancellation of debt payments for the island, given the humanitarian crisis. Prior to this announcement, only three of the 51 creditors had so much as donated relief funds to charity or offered sympathy for island residents, all of them banks who actually have to face consumers, and so are a bit more adept at handling public relations. No creditor had supported debt relief.
Of the 51 creditors contacted by The Intercept, only Citibank, Goldman Sachs, and Scotiabank have pledged no-strings-attached money for Puerto Rico and other Caribbean islands, in the form of donations to relief organizations totaling $1.25 million. Citi has also waived certain fees for citizens within disaster zones.
Puerto Rico’s other creditors contacted by The Intercept would not say whether donations were made by their firms or their top executives, which include some of the richest people on earth. Holders of Puerto Rican debt have included John Paulson, who got rich betting against the housing market during the financial crash; Jeffrey Gundlach of DoubleLine Capital, who in 2015 called Puerto Rican debt his “best idea” for investors; and Marc Lasry of Avenue Capital Group and co-owner of the Milwaukee Bucks NBA team.
The creditor lists were assembled by Puerto Rico’s Center for Investigative Journalism in 2015 and supplemented by additional media reports. In addition, the federal bankruptcy-like process in Puerto Rico forced holders of one type of debt, so-called “COFINA” bonds backed by sales tax revenue, to reveal themselves. A full list of known Puerto Rican bondholders and their responses to The Intercept’s inquiries appear at the end of this article.
Experts see even the offer that was made by the bondholders less as a gift and more as a backdoor for creditors associated with the Puerto Rico Electric Power Authority, or Prepa, to take advantage of the disaster by enriching themselves. Offering a desperate population the ability to drown themselves in even more debt is hardly generous.
The Prepa Bondholder Group has offered the island’s utility a $1 billion debtor-in-possession (DIP) loan, and a separate swap of $1 billion in existing bonds for another $850 million DIP note. This money would be immediately available for restoring electric power. In all, the deal includes $150 million in debt cancellation on roughly $9 billion in outstanding Prepa bonds.
But for a better gauge of just how altruistic the offer is, it’s an even worse bid than the creditors made before the storm hit. The overall debt relief is slim; in fact, far less than the 15 percent haircut Prepa bondholders proposed in April. And when you factor in accrued interest and higher-value bonds, Prepa bondholders would likely come out ahead.
The bondholders’ offer comes after President Donald Trump offered one of the most historically grotesque responses to a natural disaster, highlighting Puerto Rico’s debt difficulties:
Texas & Florida are doing great but Puerto Rico, which was already suffering from broken infrastructure & massive debt, is in deep trouble..
— Donald J. Trump (@realDonaldTrump) September 26, 2017
...It's old electrical grid, which was in terrible shape, was devastated. Much of the Island was destroyed, with billions of dollars....
— Donald J. Trump (@realDonaldTrump) September 26, 2017
...owed to Wall Street and the banks which, sadly, must be dealt with. Food, water and medical are top priorities - and doing well. #FEMA
— Donald J. Trump (@realDonaldTrump) September 26, 2017
Puerto Rico would not have to make interest or principal payments on the $1.85 billion in loans for the next two years, with a rate of Libor plus 4.50 percent after that. (Puerto Rico’s last note sale in 2014 was for Libor plus around 8 percent, so the terms are an improvement.) In addition, Prepa bondholders say the capital will allow Puerto Rico to provide federal matching funds to the Federal Emergency Management Agency, which could qualify the island for up to $9 billion more in grants.
Those grants are certainly important. But to be sure, Prepa bondholders “are not giving away $1.85 billion,” said Adam Levitin, bankruptcy expert and law professor at Georgetown University. “They’re giving a loan [Puerto Rico] will have to pay back. This is not a donation to the Red Cross.”
DIP financing, typically done for bankrupt entities, is considered low-risk because it puts the creditor in a senior position to get paid back in full. By swapping Prepa bonds, which are junior to other forms of Puerto Rican debt, with DIP loans, the bondholders would put themselves in a better position for repayment. They are more valuable bonds to hold. “They cut to the front of the line,” Levitin said.
Plus, opening up additional FEMA grants would boost Prepa as an asset, increasing the value of the remaining bonds.
Of course, any funding, strings or no strings, that makes Puerto Rico more likely to survive two powerful hurricanes would inevitably reward bondholders, by increasing the likelihood of repayment. And the island can certainly use any dollars it can find, though Puerto Rico could likely find plenty of lenders willing to offer such a low-risk DIP financing deal, especially with matching FEMA funds on the horizon, as well as congressional disaster relief a likelihood.
Although leaders across the political spectrum have stressed the need for aid to Puerto Rico, Congress is likely to delay a package until mid-October. The fiscal control board that governs Puerto Rico’s finances, created by 2016 legislation called the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA, has so far allowed only $1 billion to be “reprogrammed” from other parts of the budget. Austerity measures, like planned furloughs and pension cuts, have still not been formally lifted. And since tax revenues are unlikely to be collected for at least a month, cash flow is nearly impossible to come by.
Meanwhile, streets continue to look like rivers. A dam with a large crack caused hurried evacuations. Food and medications are hard to find. Eighty percent of crops are ruined. Neighborhoods have been deemed unsafe as people struggle to survive. “If anyone can hear us, help,” said one of the island’s mayors. Officials have said full restoration of power could take four to six months, and full recovery will likely take years, with damages ranging as high as $30 billion.
In August, one creditor, Aurelius Capital Management, sued to stop Puerto Rico’s bankruptcy-style case, arguing it violates the Constitution. Aurelius, owned by Paul Singer protege Mark Brodsky, has not dropped the lawsuit since the hurricanes hit.
The Prepa Bondholder Group includes mutual fund investors Franklin Templeton and Oppenheimer Funds; insurers Assured Guaranty and National Public Finance Guarantee Corp.; and hedge funds Angelo, Gordon & Co., BlueMountain Capital Management, Knighthead Capital Management, and Marathon Asset Management.
In a statement, Stephen Spencer of Houlihan Lokey, the Prepa Bondholder Group’s financial adviser, said: “Our thoughts are with the people of Puerto Rico and its residents during this difficult time and we hope that this capital commitment will provide bridge financing and matching funds as required by FEMA legislation while supporting the Commonwealth’s recovery.”
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 – no response
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.”
Correction: Sept. 27, 2017
An earlier version of this story listed Syncora as a member of the Prepa Bondholder Group. It was not a part of the most recent offer. After press time, a Paulson & Co spokesperson contacted The Intercept to say that the fund had divested its holdings sometime after 2015.
Top photo: Telesforo Menendez surveys the damage in his neighborhood Sept. 24, 2017 in Hayales de Coamo, Puerto Rico.
People, including Trump, need to stop acting as if Puerto Rico is a state with an independent government that just messed things up…..Congress passes the laws and makes the rules for Puerto Rico, including ones that devastated their economy…..Puerto Rico is a territory without the powers accorded to the states so it is unreasonable to totally blame Puerto Rico for things they didn’t have any power over.
Regardless of whether or not people got rich betting on the market, it wasn’t like someone put a gun to the heads of the Puerto Rican government to make them take the money. They signed for it and one can only wonder what the heck they did with it since the infrastructure was poor and none of the dough seems to have found its way into the electrical grid.
So instead of throwing up a smokescreen, why don’t you investigate where all that money went? $73 Billion give or take a C-note.
I wonder why they’re using the Libor benchmark.
The only thing that seems to make this deal ($1.85B) objectionable is the DIP feature. Please correct me if I misunderstand.
The country has been ravaged and utterly destroyed including its precarious electrical infrastructure. It doesn’t seem all that unreasonable that current investors who are willing to risk more money into a sinking ship require that those funds to help bail them out are guaranteed payment ahead of all prior investors.
In fact, ALL f*cking banks do this. I have personally witnessed how banks squeezed our company with liquidity covenants plus DIP and forced all other debt to be subordinated to it before they will give up their cash.
In fact, what’s missing about this deal are the future consequences regarding any future financial transactions. If this debt is accepted, these Prepa bondholders will also squeeze any future dealings being in 1st position. They will force the government of Puerto Rico to pay exorbitant fees in future negotiations and require any future debt to be subordinated to thier debt.
I’ve seen this game first hand. Once they have control of being in first place, they will exploit it with fees that will be far worse than any savings on the lower interest rates.
Puerto Rico should reject this offer and seek issuing a special US government backed security and issue it to the public.
Thanks for publishing the list of companies, but how about listing the heads of each of these so folks could publicly shame them. We need to do more to highlight who these folks are, where the live and work and play.
Ok – lets be clear. PR was wiped out by a hurricane. So are their debts. Done.
The notion that devt has no risk is horsesh*#!
Digital debt. Real need.
Start fresh PR – god love you…
Here’s more bad news: The Puerto Rican power company is publicly-owned, the largest publicly-owned power company in the U.S. Watch the assholes privatize it now, using the excuse of power being out due to the hurricane.
It’s also one of the worst Electric Systems in the country if not the worst. Perhaps privatizing it would be an improvement in this case. I live in an area with both public electricity and private electricity. The private electricity is cheaper and the service is the same. When they privatize the water in Atlanta all hell broke loose, bad service bad water. Privatization is not always the answer. Many things should never be privatized in my opinion. Experience has shown that delivery of electricity work very well in the private sector.
Privatization may work, if they have small-scale providers, who connect to a publicly-owned (and reinforced) power grid. Centralized power generation leads to massive energy losses. Get the homes rebuilt with solar, add neighborhood solar, wind and fuel cell plants- you’ve got a more reliable power system with a lot less fossil fuels! (Perhaps add in some tidal power and offshore wind, maybe keep the younger fossil fuel plants as backups.)
Puerto ricians are not second class citizens. They should receive all the help and benefits the states receive. There shouldn’t even be a question of debt. We colonized their country for goodness sakes.
So, the PRs need the U.S. Military to save their sorry azzes.
I well remember when the they chased the gringos off the island of Vieques in 1999.
Real estate purchased by U.S. Taxpayers back in the 1940s.
F THEM !
why haven’t the military transport planes been sent to evacuate the us citizens trying to leave Puerto rico?
are they too busy flying around n korea trying to stir up another war for the profiteers.
Loans are a major innovation invented by the rich. It’s amazing how it works. They use their money in order to suck even more money away from the poor.
Perhaps The Intercept could organize something to buy up the debt, similar to Rolling Jubilee. Even if we paid the debt directly, a few million less in debt would make a huge difference.
Seems like the money was stolen on both ends. Once with fees and selling bad investment products, and once more when the money disappeared down the bottomless pit in PR. I’d really like to know which Ricans were enriched with this money. I’d bet that’s one interesting rabbit hole.
This island is very ripe for a revolution just like Cuba. The banks and Trump/neocons had better which out.
How much more twisted can this become?
Hey Gov Scott, how about you give this money to Puerto Rico. Our brothers and sisters over there need it more than we do.
United Arab Emirates donates $10 million to Florida’s Irma recovery
http://www.wctv.tv/content/news/United-Arab-Emirates-donates-10-million-to-Floridas-Irma-recovery-446164143.html
NO SURPRISE. The thieves with their wallstreet poison loans game called their whores in congress to stall the aid so that the thieves could put the screws to Puerto Rico so that they could GET A NEW CONTRACT whereby they would automatically OWN THE ENTIRE ISLAND. Sound about right?
Almost. More likely the whores in congress called the thieves and asked their pimps what they should. That’s when the pimply thieves told them to hold off. Sound about right?
je sais pas comment tu imagines l économies .l économies qui tu connais .il étés dépassés .maintenant nous vivent un monde qui rassemblés plus de 7 milliard de personnes .en américa plusse de 70 millions .avec les crise sociales qui recalibrés ton politic .?????????
Watch Trump’s HUD director Ben Coonson will give out contracts to Trump affiliate construction companies and or subcontractors.
This should scarcely be surprising! After all, these are for-(great)-profit companies, not charities or aid agencies. They may well feel they have “given” the Puerto Ricans plenty in “haircuts”, and likely will be giving more now when the hurricane is a reason not to pay again.
But that doesn’t mean I’m getting out the fiddle to sing a lament for capitalists. The real problem we have: we know that the Federal Reserve makes a practice of expanding the money supply by giving out free money for long periods. So… if we’re going to do quantitative easing with a national bank, why not have it sign over some free money to the bankrupt devastated island? Then they can hand out normal debt repayments to their friendly neighborhood scavengers, some of which might be reinvested etc., and still have lots left over to rebuild the island – building the economy of every company they buy from across the country – and paying the rest back at 0% interest or even (gasp) 0.25% interest should be comparatively easy.
Of course, I know that won’t happen, and that‘s why I don’t really sing a sad song for the vulture bankers and other 1%ers, even if they get screwed out of this. There’s plenty of screw left over for the rest of us.
What benefits does Puerto Rico receive for being a part of the U.S.? Getting raped by vulture capitalists doesn’t sound like a benefit.
Since they are U.S. citizens, Puerto Ricans should immigrate to New York and get welfare benefits. Let the vultures eat themselves.
Great point, cwradio, I especially like the thought of vulture capitalists eating themselves! Although, already being citizens, I believe it’s just called “moving” – and ICE can’t stop them. Like that thought a lot, too. :)
Given the current economic & political situation, does anyone see a solution that has even a modicum of caring for our fellow citizens? Neo-colonialism obviously rules the system. In fact, the way I see it, the system requires this predatory paradigm to keep it going. Is it pitchfork time yet? All of us(especially paycheck to paycheck serfs) are targets for extraction. When it finally starts affecting those who don’t live on an island in the middle of a big ocean or in sacrifice zones here in suburbia, perhaps then farm implements will become more visible. I won’t hold my breath. Speak up people.
Puerto Rico and Greece both were sunk because of debt offered by banks. Neo-liberal politicians took the bait. FINRA and the SEC are looking into the capital markets offerings, but the odds of any even fines are almost nil against the big firms. They are instead focusing on individual brokers at broker-dealers.
Even if fines are paid by someone, none of the money will go to the people of Puerto Rico, who have been mugged by Wall Street, their centrist politicians and global warming created by ‘growth’ economics.
Debt creates profit via compounding interest rates. This is yet to be apparent because of ZIRP and other market rigging to inflate the value of bonds by keeping rates low. This is the essence of neoliberalism and disaster feudalism. Debt deflation is now structural but the Fed is still terrified that a whiff of wage-elevated prosperity would need to be dampened with rate hikes.
Neoliberal success requires our national destruction to implement a world investor government to rule over structurally-adjusted colonies populated with bondservants.
What to do? Puerto Rico was bankrupt before the hurricane. So perhaps bankruptcy court should write off the debt as there are no longer any assets. We should then compel the world bank to lend them the necessary capital to do this American place up right
Of the 51 creditors contacted by The Intercept, only Citibank, Goldman Sachs, and Scotiabank have pledged no-strings-attached money for Puerto Rico and other Caribbean islands, in the form of donations to relief organizations totaling $1.25 million.
$1.25M from these three firms combined is shameful. That’s the quarterly snack budget for one floor’s break room at Goldman’s headquarters.
How much are you donating to these deadbeats?
the banks? the taxpayers already bailed their ass out.
from June
Puerto Rican governor proposes austerity budget
https://www.wsws.org/en/articles/2017/06/05/rico-j05.html
Puerto Rico confronts the devastation wrought by hurricanes and Wall Street
https://www.wsws.org/en/articles/2017/09/25/puer-s25.html
Banksters always win, don’t they.
No. Banks fail.
banks fail, but even then the bankers still win
Then they’re not big enough.
Trump to devastated Puerto Rico: Wall Street must be paid!
http://www.wsws.org/en/articles/2017/09/27/pers-s27.html