WASHINGTON - The top Democrat on the House Natural Resources Committee is urging the panel's chair to hold a hearing to "cast a spotlight" on the "gross inequity" that hedge funds holding Puerto Rico debt are imposing on the commonwealth's citizens.
Rep. Raul Grijalva, D-Ariz., made his case to Rep. Rob Bishop, R-Utah, in a letter Wednesday that also cited a report on hedge funds' role in the Puerto Rico financial crisis that was written and released by the staff for committee Democrats.
"Certain hedge funds are attempting to rewrite recent financial and political history in order to capitalize on the island's financial difficulties at the expense of the residents of Puerto Rico, who are American citizens," Grijalva said in the letter.
The House Natural Resources' Committee's subcommittee on Indian, insular and Alaska native affairs has jurisdiction over Puerto Rico, but is just one of several panels that could weigh in on the hedge fund investments and lobbying. A bill to extend Chapter 9 bankruptcy protections to the commonwealth's public authorities is already pending before the House Judiciary Committee. The House Financial Services Committee has jurisdiction over hedge funds.
An aide for the Democrats on the Natural Resources Committee said Grijalva sent the letter calling for a hearing because he felt there was an "information vacuum on hedge funds' role in the territory." The aide added that a hearing in the Natural Resources committee would not preclude other committees from also stepping in to consider the issue.
Bishop's office could not be reached for comment on whether the representative was considering Grijalva's request to schedule a hearing.
Grijalva's concern and request for a hearing to "help Puerto Rico on the path to recovery" stems from hedge funds' investments in Puerto Rico debt that credit rating agencies made clear was risky. The report includes evidence of negative statements from ratings agencies about Puerto Rico bond-issuing authorities like the Puerto Rico Electric Power Authority, the Puerto Rico Aqueduct & Sewer Authority, and the Puerto Rico Infrastructure Financing Authority.
When the hedge funds saw the value of their holdings deteriorate as the commonwealth's $72 billion debt situation worsened, they pushed the territory to cut off relief options for families in the territory, Grijalva said.
The report refers to hedge funds' "aggressive action[s]" and attempts to "impose a radical agenda that will further harm Puerto Rico's economy."
A July hedge fund-sponsored report called for firing teachers, cutting Medicaid benefits and reducing financial assistance to the University of Puerto Rico to increase bond repayments from the commonwealth. The hedge funds have made "a self-serving attempt to enlarge their profits" at the expense of the island's citizens, the staff wrote in their report.
Several hedge funds, including BlueMountain Capital Management and Knighthead Capital Management, have also lobbied heavily against the proposed bankruptcy bill in the House. Six hedge funds, mutual funds and other investment management companies spent $120,000 on lobbying against the bankruptcy bill through the first two quarters of the year, according to data from Opensecrets.org.
The staff authors of the report frame the bankruptcy debate as hedge funds trying to retain control and leverage that they would lose if bankruptcy were extended to the public authorities. Under Chapter 9 proceedings, a judge would oversee any negotiations on bond restructuring, while without bankruptcy, "hedge fund managers would have more leverage to influence the outcome in a way that directs more money toward them instead of the people of Puerto Rico," the staff report said.
