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Alternative Market Briefing

Puerto Rico ready to submit to hedge funds demands

Wednesday, February 19, 2014

Komfie Manalo, Opalesque Asia:

The Puerto Rican government appears to be inclined to give in to the demands of several hedge funds to waive its sovereign immunity to secure a fresh $3.5bn financing, reported the New York Post.

The deal will allow Puerto Rico to stave off, at least for two years, default on its $70bn debt, although experts said waiving its sovereign immunity would put the Commonwealth into a slippery slope.

Several hedge funds, including Dan Loeb’s Third Point, Fir Tree and Arrowgrass Capital Partners, hold Puerto Rico’s municipal debt bonds and have initiated a $3.5bn financial window to the Commonwealth to prevent it from defaulting. The deal carries an interest rate north of 10%. Third Point is not involved in the new deal.

Puerto Rico is nearing default of its debt after its municipal debt bond was downgraded to junk status by credit raters.

The Post quoted Greylock Capital CEO and veteran of sovereign restructurings Hans Humes as saying that waiving its sovereign immunity would further put Puerto Rico into a more difficult situation. He said the new financing would translate to an additional $350m in interest, on top of the debt Puerto Rico is now unable to pay. "Hedge funds are setting it up for default," Humes said.

Last week, the hedge funds participating in the planned bond offering ......................

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