Hedge fund managers are feeling pain during what Puerto Rico’s governor said is one of the “most challenging times” in the island’s financial history.
At issue are the billions hedge funds such as Aurelius Capital Management, Monarch Alternative Capital and Tilden Park Capital Management poured into the commonwealth’s bonds a few years ago. As Puerto Rico sought bankruptcy-like relief for its $74 billion debt load on May 3, the hedgies that own some of that debt filed lawsuits one day before to determine who gets paid first.
“The initial problem is that there was really never clarity on this issue … it’s really in the court’s hands.” Puerto Rico Governor Ricardo Rosselló told The Post on Friday.
Aurelius and Monarch own $1.4 billion in general obligation (GO) bonds while Tilden Park along with Whitebox Advisors and Merced Partners own $1.9 billion of sales-tax revenue — or Cofina — bonds.
“The prevailing wisdom is that, of course, the GOs and Cofinas are somehow a higher echelon and others are subsequent to that.” Rosselló said.
All of the money available for debt repayment was put together in one pool earlier this year, causing tensions among the creditors.
As the pool does not cover the total debt, the haircut the bondholders are expected to take is “about 75 percent,” Rosselló said.
Whether that haircut is shared equally among creditors will be decided in court.
“We weren’t here to determine who was going to be number 1, number 2, number 3… It’s in the process and we’ll see how it unfolds,” Rosselló said.