Report highlights predatory practices of PREPA bondholders
By The Star Staff
The Citizen Commission for the Comprehensive Audit of Puerto Rico’s Public Credit published a report titled “Who Are the Vultures That Want to Increase the Electricity Bill?” exposing the nature of the investment strategies of the current Puerto Rico Electric Power Authority (PREPA) bondholders.
The report profiles some of the 15 financial investment companies that own more than $5 billion in PREPA bonds. The report also discusses the most recent division among the so-called “vulture funds” that resulted from the debt adjustment plan, between the “PREPA Ad Hoc Group” and the so-called “Majority Member PREPA Ad Hoc Group,” and how both groups struggle to protect and maximize their investments by increasing electricity rates and ignoring the urgency to rebuild Puerto Rico’s electrical grid.
The document, available at comisionauditoriapr.org, reveals that most of the “vulture funds,” valued at billions of dollars, bought PREPA’s debt in the secondary market after PREPA filed for bankruptcy and after the passage of Hurricane Maria in 2017 and the COVID pandemic in 2020.
The report adds that some of them continue to increase their investments, taking advantage of the drop in bond prices with the latest debt adjustment plan that cuts the debt by more than 70%.
Among the “vulture funds” that seek to increase the electricity bill in Puerto Rico are well-known financial giants such as BlackRock Financial Management, GoldenTree Asset Management, Taconic Capital Advisors, Nuveen Asset Management, Goldman Sachs and MacKay Shields, according to the report.
“As in other countries, these multimillion-dollar companies continue to benefit from the fiscal and social crisis in Puerto Rico to make their investments – when the bonds are sold well below the original price – now, during the debt restructuring process of the PREPA, the vulture funds seek a payment much greater than what they paid and generate million-dollar profits by demanding unfair increases in the electricity bill of Puerto Ricans,” noted Eva Prados Rodríguez, executive director of the Citizen Commission.
“The report demonstrates that the business model of these companies is one of pure financial speculation,” Prados Rodríguez added. “The vultures’ strategy is to buy debt instruments from severely indebted countries and corporations at discounted prices during times of crisis. Once they acquire these bonds, they hinder the bankruptcy process by demanding maximum compensation for their investments, regardless of the impact on the local population.”
Blackrock, after several legal battles, finally supports the Financial Oversight and Management Board for Puerto Rico’s new debt adjustment plan for PREPA that reduces debt payments, but on the other hand, it took advantage of the drop in prices it caused and has just announced that it increased its investment by about $37.6. million.
For its part, Goldman Sachs recently announced that it has PREPA bonds, when they are sold at the lowest price and seeks to avoid confirmation of the new adjustment plan by demanding a more outstanding payment, Prados Rodríguez added.
In addition to exposing their extractive investment model, the report reveals other questionable business practices of the “vulture funds” in other countries. The companies are also known for accusations of anti-competitive practices, fraud, and false advertising, being prominent investors in oil companies that contribute to global warming, among other scandals.
Prados Rodríguez said none of the groups, those that support the debt adjustment plan and those that don’t, have Puerto Rico’s best interest in mind.
Prados Rodríguez added that the next court hearing where the legal representatives of the “vulture funds” will appear before Judge Laura Taylor Swain is next Tuesday, Nov. 14.
“We invite the people to join the protest of the No More Increases Campaign in repudiation of this abuse under the slogan “Vulture Go Home” from 9 a.m. in the Federal Court, Chardón Ave.,” the Citizen Commission highlighted.