The largest holder of Puerto Rico's US$73 billion debt is a Boston-based hedge fund managed by billionaire Seth Klarman, who acquired it through a shell company subsidiary, a tactic that keeps the acquisition from public scrutiny.
The revelation was made by The Baupost Group, which reported the details to The Intercept. Baupost spokeswoman Diana DeSocio emphasized that Klarman, one of the wealthiest hedge fund managers in the world, hadn't acquired any of Puerto Rico's debt as an individual.
She also disclosed a part of her group's investment portfolio, saying, “The Baupost Group is a holder of COFINA bonds through the Decagon entities,” adding that her group regularly invests through subsidiary holding entities
A group of bondholders issued by COFINA was required to supply the names of its members as part of a court order to comply with bankruptcy procedures in July, according to The Intercept. Decagon Holdings was the member boasting the largest holdings in bond value. It amounted to US$911.6 million in COFINA bonds.
“What's incredible about this,” said Julio Lopez, the director of Make the Road Connecticut and member of HedgeClipper coalition, “is these people were actually hiding.” Regarding Klarman, he noted that the hedge fund manager's residence in Boston, a city with a “large Puerto Rican community,” makes his debt holdings even more ominous.
Lopez went on to say that Klarman's debt holdings will certainly have political ramifications and his work will revolve around “activating our community in Boston, letting them know this person has been hiding and making sure we go to his houses and companions to hold them accountable.”
Long before Hurricane Maria's heavy winds and rain wreaked havoc on the island, Puerto Rico has been hampered by a slew of austerity measures and a crippling 10-year recession resulting from a US$73 billion dollar debt. Puerto Ricans have organized mass protests and demonstrations to demand an audit of the public debt.
According to reports by the Debt Audit Commission and the ReFund America Project, roughly US$36.9 billion of the total debt is illegal. The amount owed to creditors either involved “extra-constitutional” debt-saddled with predatory interest rates or “toxic” interest rate swaps.