Savage Vulture Funds Are Killing Puerto Rico
An article to be published in the winter edition of American Prospect magazine, documents in great detail the extent of the looting, predatory lending and demands for blood practiced by the murderous vulture funds which hold, according to some estimates, anywhere from a third to a half of Puerto Rico's $72 billion in debt. Not surprisingly, the same vultures that prey on Puerto Rico, such as Aurelius Capital Management, whose founder Mark Brodsky is appropriately named "The Terminator," have also bought up the debt of Detroit, Argentina and Greece.
Author David Dayen explains that some years ago, as hundreds of U.S. corporations left the island because they lost their tax-exempt status, unleashing a deep economic crisis, Puerto Rico tried to deal with the crisis by issuing more debt. The vulture funds egged them on, since municipal bonds are free from federal, state and local taxes. Public debt has increased every year since 2000, when the debt stood at $25 billion. Once credit rating agencies began to downgrade Puerto Rico's debt in December 2012, the vultures moved in rapaciously, buying up debt on the secondary market at pennies on the dollar, and then demanding repayment of the bonds' full dollar value.
Today, these predators have become the only "investors" willing to lend to Puerto Rico, making up almost all of the participants in the 2014 sale of $3.5 billion in low-rated, 8.7% General Obligation Bonds (on which there is a constitutional guarantee of repayment)—the biggest U.S. municipal junk bond sale in history. They were willing to lend even more this past summer, even after Governor García Padilla warned on June 1 that the island's debt was "unpayable." Vultures such as DoubleLine Capital and Avenue Capital were still buying up discounted debt as recently as November.
Jeffrey Gundlach of DoubleLine has called Puerto Rican debt "his best idea" for investors. One group of vultures succeeded in overturning a Puerto Rican law that would have allowed public corporations to restructure their debt, hiring Bush League thug lawyer Ted Olson to argue the case.