This Week With Puerto Rico

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Hot Mess

What a disaster. Lots of noise on this and so here goes PETITION stream-of-consciousness mode. Trump spoke and Lawrence Summers agreed about wiping out PR's debt. But, wait! Maybe, just maybe, the process has to play out ("Hello, right hand. Meet left hand."). The bond bloodbath that wasn't. Choice quote, "There were, quantitatively speaking, twice the number of buyers than sellers, of Puerto Rico’s benchmark security, the 8 percent general obligation bonds." Sounds like one of those sellers may be MatlinPatterson which likely isn't the last hedge fund to close its doors due, at least in part, to the Puerto Rico morass. Paulson & Co. continues to sh*t away the glow it gained during the financial crisis. The Baupost Group, a Boston-based hedge fund managed by billionaire Seth Klarman, has significant exposure. As do some others. And some think that exposure will equate to 10-to-20 cents-on-the-dollar (video). And, many think Washington is to blame for a lot of this mess. Finally, a special report from Reuters on the situation.

Sheesh...the Hedge Fund Business is Rough. $VRX

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Maybe the SEC will approve a quadruple levered index fund that effectively shorts hedge funds. $111 billion has been withdrawn from hedge funds as they, collectively, fail to match the S&P Index. The linked article cites Pershing Square Capital Management, Perry Capital, Eton Park Capital Management and Paulson & Co. as examples of fallen stars; it also highlights the ridiculousness of paying these guys 2-and-20 to go long in a hedge fund hotel like Valeant ($VRX). You can just as easily lose your money in a pharma index. As Matt Levine from Bloomberg says, "The giants of the earlier, more romantic age of investing are on their way out -- retired, running family offices, reinventing themselves as quant managers, or just reeling off consecutive down years." Zing. On the flip side, Steve Cohen is whipping it out and flicking off the regulators starting in '18 (firewall). So, there ARE growth prospects in the industry so long as you're already rocking billions of your own seed funding, some celebrity, and a f*ck you attitude that translates, in the minds of the fickle, into "alpha." Yield is yield and ya gotta get it somewhere. Who cares how?

News for the Week of 10/16/16

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  • In Australia, alternative capital providers like Oaktree and Bain Capital Credit look to replace banks pulling back from risky lending amidst the increasingly distressed commodities bust.
  • Last week, we discussed Chicago's stress and efforts there to stem the tide. Here is a more technical look at Chicago's options and whether it can even go the Detroit route.
  • Here is an interesting list of the worst corporate M&A flops, some of which are familiar to restructuring professionals, e.g., KMart/Sears.  
  • Number of new pianos sold in the US is down nearly 1/3 since 2005, a fact that may force Paulson & Co. to navigate loan defaults for portfolio company, Steinway Musical Instruments.
  • As predicted last week, Relativity Media inches closer to a Chapter 7 liquidation mere months after emerging from Chapter 11. 
  • On the heels of Cosi and Garden Fresh both filing for chapter 11 recently and grocers like A&P, Haggen, and Fresh&Easy having already filed, food is filling the docket more than our stomachs these days. Along these lines, the news that Amazon is now pursuing fresh groceries has raised eyebrows and called into question, generally, the "Amazon effect":