Wednesday, February 19, 2014

The Vultures are Circling: Puerto Rico May Wave Its Sovereign Immunity

 It is only a matter of time before Puerto Rico defaults on its debt. Banksters are enticing PR with a little more money on the condition that PR waive its sovereign immunity and agree to a New York venue in the case of default.  NyPo reports:
Puerto Rico looks ready to cave to hedge-fund demands that it waive sovereign immunity to get a new $3.5 billion financing done, officials indicated in a webcast Tuesday.

The deal will allow Puerto Rico to stave off default on its $70 billion debt.

The willingness to forgo sovereign immunity has been a touchy point in negotiations — what one investor called a “slippery slope” for the Commonwealth.

Puerto Rico, whose muni debt was recently downgraded to junk status, plans to repay and refinance outstanding debt with the proceeds of the new financing.

The $3.5 billion will only last for about two years. It is expected to carry an interest rate north of 10 percent.

Puerto Rico’s muni investors include notable hedge funds like Dan Loeb’s Third Point, Fir Tree and Arrowgrass Capital Partners.
Third Point, whose Puerto Rican muni bonds were one of its top five losing positions last year, said it isn’t negotiating with the government on the new deal.

But hedge fund Stone Capital Partners put it bluntly — asking on the webcast with Puerto Rican officials if they would agree to a New York venue [should it be hauled into court in the event of a default] and a waiver of sovereign immunity.
“We’re open to including provisions that are in the best interests of the Commonwealth,” replied one Puerto Rican official, saying it is “currently inclined to accept” those terms.

Waiving sovereign immunity will put Puerto Rico in a perilous situation, said Hans Humes, CEO of hedge fund Greylock Capital and a veteran of sovereign restructurings.

Humes said an additional annual interest payment of $350 million for Puerto Rico, on top of what it is now unable to pay, is a “substantial amount for a non-growth economy. Hedge funds are setting it up for default.”


  1. "what one investor called a “slippery slope” for the Commonwealth"

    Does that mean that we can refer to PR as a "Commondebt" now?

  2. Thank God I only bought Enron senior debt!