Riley: Did Magaziner & Raimondo Invest in Vulture Hedge Funds?
Tuesday, May 02, 2017
Puerto Rico appears ready to file for bankruptcy tomorrow. An attempt to negotiate a “haircut” of 23% to general obligation bondholders of Puerto Rican debt has failed.
In Rhode Island, general obligation bondholders get first lien on tax revenue and as such would not take a “haircut." This fact explains why Rhode Island cities and towns have avoided junk ratings despite horrendous financials. Last year in early 2016, Puerto Rico Governor Padilla notified the US senate that Puerto Rico could not repay its debts.
Rather than make a decision, the US Government and President Obama did what every politician does and formed a committee.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTPadilla testified, “Absent an orderly process, [the default’s] effects will be catastrophic. That is why, starting today, the commonwealth of Puerto Rico will have to claw back revenues pledged to certain bond issues in order to maintain essential public services. We have taken this difficult step in the hopes that Congress will act soon, but let us be clear: we have no cash left.”
PROMESA is Formed
The Obama administration teamed up with Congress to pass “The Puerto Rico Oversight, Management and Economic Stability Act” (PROMESA), which turned over the island’s finances to a federally appointed committee and created a “Title III” bankruptcy process.
This Federally appointed committee has been in tough last minute negotiations with several Hedge Funds who bought Puerto Rican Debt at 30 cents on the dollar who now refuse to take a 23% haircut on their holdings.
Observers and US Congressman have expressed fear that a mass exodus of a million or so Puerto Ricans to the US mainland if bondholders don’t budge. Services have already been suspended across the Island. Puerto Ricans are in panic and leaders are expressing grave concern. Puerto Rico Catholic Archbishop Roberto Gonzáleziocese and Reverend Heriberto Martínez, the head of the Puerto Rico Bible Society, issued a joint statement this week: “If the oversight board and Governor do not act by April 28, we fear that Puerto Rico could be held hostage by predatory actors and ‘vulture’ funds.”
Here in Rhode Island, citizens are sadly oblivious when they should be paying close attention. The travails of Puerto Rico will inevitably come to Rhode Island. It may trigger distress soon as Puerto Rican residents come to enjoy our benefits and minimum wage.
Vultures versus Politicians
The fight has gotten especially nasty since the bonds first defaulted a few years back when the Governor, instead of paying bond interest due, finally actually contributed that money into the pension system.
An audit showed the effort was hopeless and likely an attempt by the Governor to avoid rioting or assassination. The audit of the union controlled Puerto Rico Employees’ Retirement System and two smaller public pension plans revealed that there are only about $1.8 billion in assets to pay $45 billion in pension liabilities. That Funding ratio of 4.2% is even worse than Providence sub 20% funded ratio.
Raimondo and Magaziner may own vulture funds
A review of the Hedge Fund Vulture firms known as “the Ad Hoc Committee” that collectively refuse to negotiate with “PROMESA” for tomorrows largest Public Bankruptcy ever, shows several Hedge Funds also owned by Treasurer Seth Magaziner and Gina Raimondo prior to Seth.
Although it shows several familiar names, the particular investments made by Rhode Island may or may not be part of the “Ad Hoc Group” of hedge funds that seek to collect in full and plunge the Island into a humanitarian crisis. Either way, it is clear that Providence and the State of Rhode Island are on the same destructive path as Puerto Rico and somebody owns our bonds. Given our 2010 law they expect to be paid off before taxpayers or public retirees.
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Michael G. Riley is vice chair at Rhode Island Center for Freedom and Prosperity and is managing member and founder of Coastal Management Group, LLC. Riley has 35 years of experience in the financial industry, having managed divisions of PaineWebber, LETCO, and TD Securities (TD Bank). He has been quoted in Barron’s, Wall Street Transcript, NY Post, and various other print media and also appeared on NBC News, Yahoo TV, and CNBC.
Related Slideshow: Timeline - Rhode Island Pension Reform
GoLocalProv breaks down the sequence of events that have played out during Rhode Island's State Employee Pension Fund reform.
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