Profiting from Puerto Rico’s Debt Market

Michael Lau’s $3B Hedge Fund is Forming a Fund to Buy Puerto Rico Debt

As the commonwealth and the Candlewood Investment Group LP’s agencies struggle with $73 billion of obligations, the $3 billion hedge-fund firm run by Michael Lau is planning to form a fund to profit from Puerto Rico’s debt market.
The Candlewood Puerto Rico SP fund will target securities including general-obligation bonds, debt of public corporations and the monoline-wrapped space, the New York-based firm said in a presentation obtained by Bloomberg News. Market prices are offering unadjusted yields of 8 percent to 10 percent and U.S. tax-equivalent yields of 16 percent to 20 percent, it said.
Candlewood joins hedge funds including Brigade Capital Management LLC, Fir Tree Partners, Monarch Alternative Capital LP and Perry Capital LLC in investing in Puerto Rico as the island seeks to boost its economy, which has contracted by 20 percent since July 2005. About 45 percent of the island’s 3.6 million residents live in poverty, according to U.S. Census data.
Security selection will be important as certain segments of the market may retain “significant value” and others may “suffer full impairment,” Candlewood wrote.

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