Little-known hedgie plays hardball with Puerto Rico’s debt

By Michelle Celarier November 14, 2015 | 3:13am

A member of a labor union shouts slogans while holding a Puerto Rico flag during a protest in San Juan. Photo: Reuters

A member of a labor union shouts slogans while holding a Puerto Rico flag during a protest in San Juan. Photo: Reuters

As Puerto Rico careens toward a major default on its $70 billion debt load, one hedge fund mogul is emerging as a stumbling block to any deal with creditors.

No, it’s not renowned “holdout” Paul Singer, who isn’t involved in the Island.

The main hurdle for Puerto Rico is Mark Brodsky, a former bankruptcy lawyer who in 2004 left Singer’s Elliott Management after 10 years to strike out on his own.

Brodsky’s firm, the $4.5 billion Aurelius Capital, is one of several hedge funds that own Puerto Rico’s general obligations bonds and are due an interest payment of $267 million on Dec. 1 — a debt Puerto Rico said it can’t pay.

This week, Moody’s Investors Service said default is likely. While no official talks have been held, the island commonwealth has said it wants bondholders to take losses or exchange their debt for new bonds that pay a lower interest rate and carry a longer payout period.

So far, Brodsky is less than bowled over by the idea, several sources said.

“He’s digging in his heels and refusing to compromise,” said a person close to the informal discussions that have taken place among creditors.

Word to Puerto Rico officials: Get ready for a protracted fight.

When Brodsky teamed up with his ally Singer as investors in Argentine debt, it was Aurelius who was the most stubborn holdout — not Singer, who got most of the headlines, sources said.

In September, Brodsky was at it again — trying to block a restructuring deal between Ukraine and its bondholders, according to individuals involved in the talks, who said Brodsky ended up cutting a side deal to get paid back 100 cents on the dollar.

Over the next 16 days (and beyond), Aurelius is expected to be just as sharp a thorn in Puerto Rico’s side.

Aurelius owns a big chunk of Puerto Rico’s $12 billion in general obligation debt — part of its overall debt load.

The creditors have been meeting in recent weeks to try to find common ground on concessions they can agree on in upcoming negotiations with Puerto Rico.

But Aurelius hasn’t been in the creditor meetings, sources said. In fact, Aurelius’ posture is one of the reasons the so-called Ad Hoc Group of Puerto Rican creditors — to which it belonged — recently broke up after many of the funds realized that lobbying for full payment wasn’t going to work, these sources told The Post.

“It’s one thing to have a claim, and it’s another thing to expect to get that,” said one hedge fund manager regarding Aurelius’ take- no-prisoners attitude.

In recent weeks, the Treasury Department has asked Congress to intervene by passing a bankruptcy law for Puerto Rico.

Such a change is unlikely to happen — at least not before the commonwealth runs out of money, sources said.

Unlike Singer’s $27 billion Elliott Management, which has also become a major activist player in the stock market, Aurelius is a much smaller fund that is solely focused on distressed debt.

That may be one reason for Brodsky’s intransigence, investors say.

He’s also having a bad year. Aurelius had lost 3 percent this year through October, according to investors.

Brodsky did not return calls for comment.

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