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 worsebid 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: (...)
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. (...)
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.
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 worsebid 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: (...)
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. (...)
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.
by David Dayen, The Intercept | Read more:
Image: Joe Raedle/Getty Images
[ed. Vs. Texas and Florida. Honestly, I don't know what Puerto Rico gets out of its subservient relationship with the United States. I experienced an electrical outage in January that lasted only three days and things go to hell real quick (fortunately, we still had water). Imagine: no hot water for showers, cooking, coffee, etc.; no refrigeration (food spoils quickly, no cold beverages, ice, food, etc.); no internet, tv, microwaves or other appliances; no lights at night; no cell phones (charging, remember?); no banking (ATMs, computers, etc.); no fuel (electricity runs the pumps); no home heating or cooling. And that doesn't even get to basic infrastructure like traffic lights, hospitals, airports, police, etc. (hopefully all have emergency backup generators [ed. Update: they don't], but not everything associated with these is tied into the emergency support grid). People are probably trapped and can't get out. We usually don't give electricity much thought, but when it's gone you're pretty much screwed (without the additional "help" of disaster capitalists/opportunists like these). See also: Memento Mori: a Requiem for Puerto Rico] [Photos here:]
