Billionaire hedge-fund manager Seth Klarman questioned the wisdom of expunging Puerto Rico’s financial obligations in a Wednesday letter to his investors.
The message from one of Puerto Rico’s most prominent investors was a response to intensifying calls for deep write-downs on the U.S. territory’s $73 billion in debt to free up funds for mounting fiscal and humanitarian problems following Hurricane Maria.
An activist group has contacted institutions invested in Klarman’s Baupost Group to request they pressure the hedge fund into forgiving its portion of Puerto Rico’s distressed bonds, according to his letter. Baupost owns $911 million in bonds backed by Puerto Rico sales taxes.
Canceling Puerto Rico’s public debts or putting a moratorium on payments “may be well intentioned,” Klarman said in his letter, but “it is impractical” and would undermine the obligation of bond issuers to repay their obligations that undergird credit markets.