Puerto Rico Investors to Get 10 to 20 Cent Recoveries, Bass Says

(Bloomberg) -- Puerto Rico bondholders should only expect to recover 10 to 20 cents on the dollar when the island emerges from its record-setting bankruptcy, in line with recoveries seen when sovereign nations default, according to Kyle Bass, managing partner of Hayman Capital Management.

"Puerto Rico is just a simple math 101 question," Bass said in a Bloomberg Television interview Friday. "You have to be a little crazy to think that $100 billion worth of debt or even $70 billion of on-balance sheet debt is worth anything with 1.4 million workers and an economy like Puerto Rico’s."

Puerto Rico bonds tumbled to record lows this week after President Donald Trump suggested the island’s $74 billion debt load should be wiped out in the aftermath of Hurricane Maria. The bonds recovered slightly after White House officials clarified the president’s statements. Yesterday, White House press secretary Sarah Huckabee Sanders said he wanted the issue resolved in court, as is currently the case.

Puerto Rico general-obligation bonds due in 2041 traded Friday for an average of 35 cents on the dollar after tumbling as low as 28 cents this week.

Earlier this year, Puerto Rico declared a form of bankruptcy to restructure its debts in court, an option that Congress extended through emergency legislation enacted last year. Hedge funds are not the only holders of the island’s bonds: Puerto Rican residents hold billions of the securities.

To contact the reporters on this story: Rebecca Spalding in New York at rspalding@bloomberg.net, Danielle Moran in New York at dmoran21@bloomberg.net.

To contact the editors responsible for this story: Christopher Maloney at cmaloney16@bloomberg.net, James Crombie, William Selway