Sunday, October 27, 2013

Is There Hope for Puerto Rico ?

Watch out, Puerto Rico—the hedge funds are here to save you
By Simone Foxman @simonefoxman October 25, 2013
Puerto Rico is in a world of hurt. Not only is it impoverished, it’s finding it ever harder to borrow money from financial markets. But fear not, frail Puerto Rico: Speculators are coming to your rescue!

There’s a new influx of new investors. Bloomberg reports that Maglan Capital, MeehanCombs, and Marathon Asset Management have all been buying up Puerto Rican debt—and they’re probably just the tip of the iceberg. Trading in the bonds has soared, from an average of $3-5 billion traded per month to $20 billion in September according to Citigroup analysts, reports the Financial Times (paywall).
Puerto-Rico-municipal-bond-yield_chartbuilder (1)

“Crossover investors”—hedge funds and distressed debt investors—are willing to take on more risk than Puerto Rico’s former investors: mutual funds. That could save the island’s bacon, at least temporarily. But hedge funds are are also more fickle than mutual funds; although some may be betting that the Puerto Rican government can make structural reforms that will return the territory to growth, others are just in for a good short-term deal. Hedge funds also infiltrated Greece and Argentina ahead of their defaults.