Cofina Senior Bonds that even among the big credit holders who knew Deecagon none knew that it was a registered agent of
After President Donald Trump surprised Wall Street by saying that Puerto Rican debt might be “wiped out,” sending Puerto Rican debt tumbling in early morning trade, the White House later walked back such comments as the governor of Puerto Rico encourages bondholders to join with him and encourage Congress to provide the island an aid package. BTIG says that Trump doesn’t have the authority to eliminate Puerto Rico’s debt, echoing early ValueWalk reporting that noted bondholder payments are likely to be determined by a judge. The bondholders, led by Seth Klarman’s Baupost Group, have a vested interest in ensuring that Congressional aid makes its way to the island territory, however, as the more aid the US government provides the less pressure on bondholders many of whom are big holders of Cofina Senior bonds.
“They owe a lot of money to your friends on Wall Street and we’re going to have to wipe that out. You can say goodbye to that,” President Trump told Fox News. “I don’t know if it’s Goldman Sachs, but whoever it is, you can wave goodbye to that.”
Those words sent Puerto Rican bond prices immediately tumbling from 56 cents on the dollar to 36 cents Wednesday even though President Trump might not even have the authority to eliminate the debt.
According to BTIG’s Mark Palmer, it is not the President, but Judge Laura Taylor Swain and a panel of five federal judges she appointed who will determine how and when bond payments flow to investors.
“Trump does not have the ability to wipe out Puerto Rico’s debt,” he wrote. “We also doubt that Trump’s comments will hold much sway over Judge Swain, who was chosen for her role by U. S. Supreme Court Chief Justice Roberts and gained a reputation for fairness and fair treatment while serving as a bankruptcy judge and a U. S. District Court judge.”
Trump can remove appointees from the oversight board but is unlikely to do so because they share his view on placing pressure on bondholders. “The oversight board has been consistently anti-creditor throughout its tenure,” he wrote in an October 4 research note. “The majority of its members are already on the same page with Trump in terms of their desire to impose steep haircuts on bondholders.”
Despite the ability to determine bondholder payments falling into the hands of a judicial process, the White House nonetheless walked back Trump’s comments late Wednesday.
“I wouldn’t take it word for word,” Mick Mulvaney, director of the Office Management and Budget, told CNN.
Puerto Fico’s Governor Ricardo Rossello called for unity with bondholders to pressure Congress for a meaningful aid package. “We are all one,” he told CNBC, advocating for a title 6 restructuring process which provides more room for negotiation as opposed to the title 3 process that was imposed earlier this year.
The more aid Puerto Rico receives from the US Government means the less that is likely to come out of bondholder pockets.
Major hedge funds with exposure to Puerto Rican bonds include Baupost Group, who the Intercept first revealed made its nearly $911.16 million in Puerto Rico exposure. This includes $469 million in COFINA senior bonds and about $442 in COFINA subordinate bonds through Decagon Holdings, as of last July.
Sources, told ValueWalk that even among the big credit holders who knew Deecagon none knew that it was a registered agent of Baupost. The only hint until this week was the connection to Boston where Baupost is also based.
Other hedge fund holders, according to Reuters research, include:
* GoldenTree Asset Management LP: $528.54 million of COFINAs, including $97.37 million of COFINA subordinate bonds
* Tilden Park Investment Master Fund LP: $465.02 million of COFINAs, including $9.14 million COFINA subordinate bonds
* Canyon Capital Advisors LLC: $303.08 million of COFINA senior bonds
* Old Bellows Partners LP: $215.03 million of COFINA senior bonds
* Whitebox Advisors LLC: $159.2 million of COFINAs, including $27 million of COFINA subordinate bonds
* Taconic Capital Advisors LP: $154.34 million of COFINAs, including $21.98 million of COFINA subordinate bonds
* Varde Partners Inc: $111.64 million COFINA senior bonds
* Aristeia Capital LLC: $107.03 million of COFINAs, including $4.44 million of COFINA subordinate bonds
* Cyrus Capital Partners, LP: $93.11 million of COFINA senior bonds
* Scoggin Management LP: $60.31 million of COFINA senior bonds
* Merced Capital LP: $36.12 million of COFINA senior bonds
* Fideicomiso Plaza: $1.21 million of COFINA senior bonds
