Vulture funds corner Puerto Rico

On April 9, 2015, the Centro de Periodismo Investigativo (CPI) published “Fondos buitre acorralan a Puerto Rico”: investment firms drawn to sovereign crises (Argentina, Greece, Spain) were already operating on the island. Financial-sector sources told CPI that between 40% and 50% of government debt was under hedge-fund control, including so-called vulture funds.

They are interested, for example, in AAA debt — three firms had already bought almost all of it — General Obligation bonds (constitutional guarantee), COFINA, the Retirement System, GDB and ACT. Sergio Marxuach (CNE) explained that these funds seek bonds and shares of countries or companies under default pressure; Stephen Albrecht (SEIU) added that they deepen the crisis and charge high fees. At PREPA, Marxuach warned, they can push fast restructurings or demand physical assets as collateral.

The SEC does not distinguish “vulture” from hedge fund; it describes speculative funds with less federal regulation, open to “accredited investors.” Cited strategies include short selling. Juan Pablo Bohoslavsky (UN external-debt expert) said they obstruct debt repayment and undermine human rights.

The $3.5 billion issue of March 11, 2014 attracted them — Bank of America Merrill Lynch called it the largest and costliest municipal junk-bond transaction — with a real tax-free yield of 8.727%. Firms such as Paulson & Company, Och-Ziff, Fir Tree, Perry Capital and Brigade each bought more than $100 million of that issue; CPI lists dozens more (Third Point, Appaloosa, Farallon, Avenue, Knighthead, Blue Mountain, etc.). Melba Acosta (then Treasury / later GDB) spoke of widening the investor base toward sovereign-debt buyers and of hiring ex-IMF staff and analyst Todd Hagerman.

CPI stresses that the government operates blind as to who holds bonds in the secondary market. Marxuach: vultures often buy cheap there to restructure or resell. A new issue was floated for April–May 2015, complicated by tax reform, PREPA and weak collections. Holding debt ≠ theft; Argentine litigation (Griesa) is cited as a pressure precedent, not a local judgment. Cousin: 578.