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El Salvador's Bond Buyback; Why Puerto Rico's Grid Is So Hard to Fix
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Good day and welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Thursday, September 22. El Salvador bought back debt, but didn't soothe fears of default. Puerto Rico's power grid has been weak for years, despite efforts to fix it. And the debt backing Citrix Systems' leveraged buyout finally found its way to investors, but at deep discounts that cloud the outlook for buyout activity more generally.
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WATCH: El Salvador's risky bitcoin investment.
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El Salvador buys back debt. El Salvador tapped its thin foreign-currency reserves to repurchase debt at a discount, part of an effort to mitigate concerns about an imminent debt default as President Nayib Bukele intends to seek re-election.
The government of the highly indebted Central American nation said it would buy back $566 million, paying bondholders 91 cents on the dollar for its bond due early next year and 54 cents for its 2025 bond. But investors are skeptical it will dispel fears of default for the impoverished country after its embrace of bitcoin put it at odds with the International Monetary Fund.
Fitch Ratings downgraded El Salvador earlier this month, warning that the buyback will “likely further weaken its already strained liquidity position” as the country faces a $1 billion funding gap between now and January.
To carry out the buyback, the government used the roughly $350 million that it received last year from the IMF to pad member countries' central bank reserves through the pandemic.
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“The fact that a country buys back debt at very low prices in a difficult economic and political situation is a sign that things are not going well."
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— Sergi Lanau, deputy chief economist at the Institute of International Finance
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PODCAST: Puerto Rico's long struggle to keep the lights on
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With much of Puerto Rico still without electricity, WSJ Pro Bankruptcy explains why the private company brought in to fix the power grid hasn’t made much progress.
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PHOTO: DAVID PAUL MORRIS/BLOOMBERG NEWS
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Citrix debt deal leaves underwriter banks with losses. Investment banks including Bank of America Corp., Credit Suisse Group AG and Goldman Sachs Group Inc. are on track to collectively lose more than $500 million on debt backing the largest U.S. leveraged buyout of the year.
The $4 billion in bonds backing the $16.5 billion take-private deal for Citrix Systems Inc. were auctioned off Tuesday at a 16% discount, netting around $500 million in losses alone for underwriting banks. The banks additionally sold a $4.1 billion loan at a 9% discount to face value, with losses north of $100 million, people familiar with the matter said.
The sale of the debt for the cloud-computing company has been closely watched by private-equity investors, and the steep discounts could further damp the outlook for buyout activity.
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Alex Jones says Infowars will find new bankruptcy advisers. Infowars broadcaster Alex Jones said Wednesday that its bankrupt parent company will find new chapter 11 advisers after a bankruptcy judge booted professionals from the case over an undisclosed conflict.
Mr. Jones addressed the bankruptcy-court ruling outside of a Connecticut courthouse where he and Infowars parent Free Speech Systems LLC are facing a damages trial for defaming the families of Sandy Hook shooting victims.
Mr. Jones said that Free Speech Systems remains in control of its chapter 11 case and will work closely with a so-called Subchapter V trustee to find new advisers. The judge also ordered the Subchapter V trustee to review FSS' finances and transactions Sandy Hook families have raised concerns about. — Jonathan Randles
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Note: Chart shows midpoint of range since 2008.
Source: Federal Reserve
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Fed raises interest rates by 0.75 percentage point for third straight meeting. The Federal Reserve approved its third consecutive interest-rate rise of 0.75 percentage point and signaled additional large increases were likely even though they are raising the risk of recession.
And while inflation forecasts didn't change much from where they were in June, the central bank is expecting a much more hawkish path for monetary policy.
Fed officials voted unanimously to lift their benchmark federal-funds rate to a range between 3% and 3.25%, a level last seen in early 2008. Rates are expected to rise to between 4% and 4.5% by the end of this year, according to new Fed projections released Wednesday, which would call for sizable rate increases at policy meetings in November and December.
The Fed also projected that rate rises will continue into 2023, with most expecting the fed-funds rate to top out around 4.6% by the end of next year, up from a projected 3.8% in the last Fed estimate.
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“No one knows whether this process will lead to a recession or, if so, how significant that recession will be."
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— Fed Chairman Jerome Powell
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