Meet Aurelius Vulture Fund: Argentina, Detroit, and now Puerto Rico Its Intended Victims
The Unhived Mind
Meet Aurelius Vulture Fund: Argentina, Detroit, and now Puerto Rico Its Intended Victims
July 23, 2014 • 9:59PM
http://larouchepac.com/node/31394
Panic is spreading in Wall Street, particularly among municipal-bond-holding mutual funds, as depression-wracked Puerto Rico verges on the brink of default on its public debt, which totals $73 billion. Backed by hedge funds and “buyers of distressed debt” (i.e., vulture funds), Puerto Rico’s Democratic Governor Alejandro Garcia Padilla pushed through debt- restructuring, i.e., bail-in, legislation which would force traditional municipal bond holders to take a “haircut,” while protecting the vulture funds that purchased distressed general-obligation bonds and other categories of debt which can’t be restructured under the new law.
One of the vultures backing the Puerto Rican restructuring/ bail-in law is Aurelius Capital Management, also part of the attempted bond-holder looting of Argentina, and, as well, one of the leading hedge funds buying into the Detroit debt/swap, with nearly $200 million of distressed Detroit debt purchased so far. At the center of the Puerto Rican default panic are the island’s highway, water, and power authorities, and particularly the Puerto Rico Electric Power Authority (PREPA), whose bonds have fallen to 40 cents on the dollar or less. After threatening to default on July 1, PERPA then reached an agreement with creditors to postpone payments until July 31. At that point, it will have to decide whether to be the first public agency to use the new bail-in law; press accounts describe nervous investors expecting a break in the situation by mid-August.
Meanwhile, vulture funds such as Aurelius are lurking on the sidelines, buying up distressed debt while watching the general-obligation bonds rally, since they aren’t subject to the bail-in law. Meanwhile in Detroit, city manager Kevin Orr is trying to squeeze out $90 million by forcing payments from residents whose water has been shut off. The total target population is large, about 40,000 residences. 8,000 were cut off in June, and 1,700 more in July, before this was suspended by the Detroit Water and Sewerage Dept. But the department is using the 15-day suspension to identify shut-off users who have turned their own water back on, and get sizeable fines imposed on them, still targeting the $90 million. This is not much more than the $65 million Detroit still has to pay UBS and Bank of America on its interest rate swap.