Loading ...Who Are The Biggest Losers From The Puerto Rico Bankruptcy
May 5, 2017
Back in 2013, markets tumbled (if briefly) on the news that Detroit would file for bankruptcy, at the time the biggest municipal bankruptcy in US history with over $18 billion in liabilities. Yesterday, algos barely even bothered to look up when Puerto Rico’s governor announced that the US Commonwealth would submit Title III (aka bankruptcy) protection, despite a debt load of more than $70 billion, or nearly four times greater than Detroit’s.
So does that mean that there are no losers or casualties (metaphorically speaking for now) from the bankruptcy filing? The answer is that in addition to the citizens of Puerto Rico of course, more than half of whom live in poverty and who are about to be crushed by even more austere financial conditions (that said, nobody ever complained when Puerto Rico was raking in the billions in debt), the biggest losers are a handful of hedge and mutual funds, all of whom were attracted by the island’s high yields forgetting that yields were high in the first place for a reason.
Here’s a list, courtesy of the WSJ:
- At the top of the pile are plain vanilla mutual funds, which held about $14 billion of Puerto Rico’s outstanding bonds as of March, according to Morningstar Inc. Two fund families, OppenheimerFunds and Franklin Templeton Investments, held most of the debt. About 7% of Franklin’s debt was insured as of mid-March, the WSJ calculates, which also means that 93% was not and will suffer impairments.
- General Obligation bondholders include: Aurelius Capital Management, Autonomy Capital and Monarch Alternative Capital LP,
- Sales tax revenue-backed (Cofinas) bondholders: Scoggin Capital Management, GoldenTree Asset Management, Merced Capital, Tilden Park and Whitebox Advisors have held Cofinas.
- Bonds insurers: roughly $12 billion of the island’s $70 billion in outstanding debt is insured. It will be up to the bond insurers to fill the gap when interest and maturity payments are missed. Insurers backed a wide swath of bonds from Puerto Rico, complicating the island’s ability to prioritize payments. Among the companies with the biggest exposure to Puerto Rico debt include Ambac Financial Group, National Public Finance Guarantee Corporation, Assured Guaranty Ltd. and Financial Guaranty Insurance Company