Puerto Rico, Hedge Funds Look to Ex-IMF Officials to Help With Debt Crisis

According to The Wall Street Journal, the government of Puerto Rico and the hedge funds that own its bonds are looking to ex-International Monetary Fund officials to help solve the U.S. territory’s growing debt problem. Meantime, Puerto Rico is talking to the funds and other investors about borrowing some $3 billion in new bonds to help fill its coffers that are almost empty. Already, the commonwealth is in debt of over $70 billion.

Now, say sources, Puerto Rico has retained ex-IMF first deputy managing director Anne Krueger as a consultant, and a committee for the hedge funds is talking to the IMF’s ex-Western Hemisphere department director Claudio Loser. The IMF is considered the lender of last resort for countries that are considered emerging market nations.

The dealings with ex-IMF heads are an indicator of Puerto Rico’s unusual status. It is not a sovereign nation or a U.S. state. Therefore, its municipal entities are not entitled to the U.S.’s bankruptcy protections. Yet because the island is an American commonwealth, it doesn’t qualify for aid from the IMF.

Earlier this year, a federal judge blocked a local law that would have allowed the Puerto Rico Electrical Power Authority and other public authorities access to a restructuring process. However, a committee in the U.S. house is looking at a bill that would let agencies in the territory gain access to the same Chapter 9 protections that were given to the city of Detroit. The Michigan city filed for bankruptcy after incurring $18 billion in debt. It has since emerged from bankruptcy protection.

One year after Puerto Rico borrowed $3.5 billion in bond markets, with hedge funds purchasing over half the deal, the island has had a hard time making good on a promised tax overhaul. Bond prices have declined. Meantime, sources tell The Wall Street Journal, the hedge funds that possess a lot of Puerto Rico bonds are looking to the IMF for guidance on how they can promise new loans to push for financial overhaul or negotiate with a sovereign in default.

Puerto Rico Municipal Bond Fraud Cases
Investors who sustained losses from Puerto Rico muni bonds a couple of years back are still looking to get back their investments. A lot of investors were persuaded by brokerage firms such as UBS Puerto Rico (UBS), Banco Santander (SAN), and Banco Popular, to invest in these securities even when they didn’t have the funds or their portfolios could not handle the risks. Some brokers even encouraged investors to borrow so they could invest more.

At Shepherd Smith Edwards and Kantas, LTD LLP, our Puerto Rico muni bond fraud lawyers represent investors in Puerto Rico and the US. Our job is to help them recoup their losses. Contact us today.



Puerto Rico, Investors Enlist Ex-IMF Officials, The Wall Street Journal, April 12, 2015

Puerto Rico hires former IMF staffers to boost disclosure, Reuters, March 23, 2015

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