Echoing President Obama’s interference in the legal bond-holder process of the General Motors bankruptcy, President Trump’s comments that Puerto Rico’s debt “will be wiped out” yesterday has sparked a bloodbath in PR Muni bonds. Puerto Rico’s 8s of 2035 plunged to a record low 35 cents on the dollar this morning from 44 yesterday, as bond-holders fled hitting any bid, worried that Trump would follow through on his warning.
And it’s getting worse.
Based on his comment, Trump appears to have had the intention of punishing Wall Streeters – naming Goldman Sachs – on their Puerto Rico holdings
“We are going to work something out. We have to look at their whole debt structure,” Trump said during an interview on Fox News Tuesday. “You know they owe a lot of money to your friends on Wall Street. We’re gonna have to wipe that out. That’s gonna have to be – you know, you can say goodbye to that. I don’t know if it’s Goldman Sachs but whoever it is, you can wave goodbye to that.”
This was not the first time Trump targeted Wall Street bondholders, and last Monday Trump pointed to Puerto Rico’s “massive debt” problems when he tweeted that it owes “billions of dollars” to “Wall Street and the banks, which, sadly, must be dealt with.”
There are a few problems with this: for one, it is unclear how much, if any, commonwealth debt Goldman Sachs Group Inc. still holds in its mutual funds. As of July, significant tranches of its debt were held by companies including Aurelius Capital Management LP, Autonomy Capital LP and Franklin Mutual Advisers LLC, according to Bloomberg data.
The other problem is that much of the island’s debt is owed – mostly indirectly – by retail investors. As a reminder, Puerto Rico owes $74 billion.
