NEW YORK (Reuters) - Marc Lasry, billionaire owner of Avenue Capital Management, said on Wednesday he does not expect Puerto Rico, struggling with the devastation caused by two hurricanes and bankruptcy, to make debt payments for at least the next two to three years.
Known for his distressed asset investment strategy, Lasry said he should not be but still is invested in Puerto Rican debt. “We lost money in it,” Lasry said at the Reuters Global Investment 2018 Outlook Summit.
“We sold a bunch, so it is not that big (of a position), probably $50 million in market value, so probably $150 million to $200 million in face (value),” Lasry said.
Hurricane Maria made landfall in September, knocking out power to the entire island and compounding a financial crisis in the U.S. commonwealth, which has declared bankruptcy with a combination of $120 billion in unpayable debt and pension liabilities.
Under the 2016 Puerto Rico rescue law known as PROMESA, Puerto Rico and its agencies, including utility PREPA, filed for bankruptcy under special rules known as Title III. Those proceedings are being overseen by the federally appointed Financial Oversight and Management Board for Puerto Rico, also created under PROMESA.
Lasry said the majority of the investment is in the debt issued by the Puerto Rico Electric Power Authority (PREPA), followed by general government obligation debt and other credits.
“It has become a much longer hold,” he said, but was not sure he would come out whole in the end.
“That’s why we are holding it. That’s the analysis we have made, but it is just getting more and more complicated,” he said.
Indeed, Puerto Rican Governor Ricardo Rossello on Monday requested $94.4 billion from Congress to rebuild the island, which is still struggling to restore full power supplies. On Wednesday a technical problem knocked out electricity to parts of capital San Juan and other areas.
Two Democrat lawmakers urged in a letter on Wednesday to the Oversight Board that it should request the U.S. court overseeing the debt restructuring to completely write off the island’s debt obligations.
Both U.S. Representative Nydia Velázquez of New York and Senator Elizabeth Warren of Massachusetts wrote that Puerto Rico should be addressing its humanitarian crisis and rebuilding rather than paying creditors.
“Irrespective of Congress’s response, creditors must now finally face the reality that Puerto Rico will never be able to repay its preexisting debt, and the Oversight Board must act in accordance with that reality too,” the lawmakers wrote to the board chairman, Jose Carrion.
The Oversight Board’s lead lawyer was cited in a Bloomberg News article suggesting in a Manhattan court that the island was considering suspending debt-service payments for five years.
However, in response to a Reuters query about the debt service, board spokesman Francisco Cimadevilla said in a statement: “The Oversight Board is in the initial stages of developing a five-year fiscal plan and has no specific numbers at this time. That said, the devastating effect of the hurricane on the economy and already dire financial situation is substantial.”
Under its Title III bankruptcy filings, Puerto Rico already has stopped making payments on its debt.
Puerto Rico’s benchmark 2035 General Obligation debt, which trades like an equity given it is in default, fell to an all-time low on Wednesday of 24 cents on the dollar. The bond was issued in 2014 with an 8 percent coupon. 74514LE86=MSRB
(For a graphic on 'Puerto Rico - Benchmark 2035 GO debt - snapshot Nov. 15 2017' click reut.rs/2zGVX5u)
For other stories from Reuters Global Investment Outlook Summit, see: here
Reporting by Daniel Bases