China Issues First Dollar Bond Since 2004, Bails Out Corporate Liquidity

Despite downgrades from the rating agencies, China is issuing its first sovereign dollar bond issues in 13 years on an unrated basis (what do the agencies know anyway) and at tight spreads to US Treasuries. The 5 and 10-year issues come just over a month since S&P cut the nation’s rating one level to A+ on 21 September 2017. Moody’s had already cut to single A.

Bloomberg reports that China began marketing its first sovereign dollar bonds since 2004 following a week when Chinese leaders in Beijing outlined a greater role for the nation on the world stage. The Ministry of Finance is offering $1 billion of five-year notes at a spread of 30 to 40 basis points over Treasuries, and the same amount of 10-year debt at a premium of 40 to 50 basis points, according to people familiar with the offering, who aren’t authorized to speak publicly…China is offering the bonds unrated, in a break with traditional practice by sovereigns in the region when they sell dollar notes. S&P Global Ratings last month followed Moody’s Investors Service in cutting China’s sovereign rating, citing soaring debt and increased economic and financial risks. The debt sale is one of the most eagerly anticipated in Asia this year…

The sovereign itself has been a rare issuer in foreign currencies and has only ever sold the equivalent of about $11 billion of such notes, according to data compiled by Bloomberg.

The order books exceeds 22 billion dollars, according to Bloomberg.

The lack of a formal rating on the Ministry of Finance of the People’s Republic of China’s dual-tranche U.S. dollar bond offering isn’t impeding the sale as the order books are reported to exceed $22 billion at initial price guidance as the books move to Europe…

 

Key comparable bonds include Japan Bank for International Cooperation’s $1.25 billion 2.875% due July 2027 which was quoted around T +43 basis points, State of Israel’s $1 billion 2.875% due March 2026 which was quoted around T +41 basis points and Germany’s KFW’s $2 billion 2% due May 2025 which was quoted around T +4 basis points…

 

China’s first sovereign dollar bond offering since 2004 is being lead managed by Bank of China, Bank of Communications, Agricultural Bank of China, China Construction Bank, CICC, Citigroup, Deutsche Bank, HSBC, ICBC and Standard Chartered Bank

The scarcity of similar Chinese bonds was a factor having a positive impact on spreads as one analyst told Bloomberg.

“We believe that pricing will ultimately settle on the tight end of initial price guidance,” said Todd Schubert, head of fixed-income research at Bank of Singapore Ltd., citing strong demand for emerging market bonds, and the scarcity value of a Chinese sovereign bond.

 

The announced guidance “is in line with our expectation,” he said. BNP Paribas SA said this week the five-year and 10-year bonds may price at 30 basis points and 40 basis points respectively over Treasuries. The 10-year note is set to price at a spread lower than South Korea’s bond of the same tenor. South Korea, rated two levels higher than China, sold a 10-year bond at a spread of 55 basis points in January, and it was about 74 basis points on Thursday.

Cynicism regarding the modus operandi of the Chinese authorities might have played a role too – this from Reuters.

The MoF has previously manipulated offshore bond sales by force-feeding them to compliant Chinese banks. This simulates demand without market substance. This time around, however, the securities may attract more foreign interest: as the mainland economy has recovered, foreign anxiety has genuinely eased.

Reuters emphasises the favourable (but incorrect in our opinion) repricing of Chinese risk and China’s motivation for the dollar bond issue.

Beijing’s dollar bonds show how Chinese risk has been repriced. The country is selling $2 billion of five-and 10-year sovereign dollar bonds, the first such issue since 2004. Despite recent downgrades by global rating agencies, these are likely to yield just 30 to 50 basis points above U.S. Treasury bonds. Local banks can guarantee demand if needed, but there is also a genuine reassessment of China risk underway. China does not need the money, but the borrowing serves multiple purposes. It helps stabilize cross-border capital flows, refills hard-currency reserves, and makes it easier for companies to refinance in dollars, since there will now be benchmark issues to price against. It is also a rebuke to the credit rating agencies, showing China can brush aside their warnings.

Indeed, the anticipation that China’s sovereign issue would “price tight” helped push spreads on state-owned corporate debt lower.

Despite investors falling over themselves to get hold of these Chinese sovereigns, we have sympathy for Reuters’ warning about dollar lending to China’s over-leveraged corporate sector.

Even so, this is an unrated issue by a country infamous for credit-fueled growth, weak rule of law, and selective respect for international norms.

It’s one thing to lend money to the Chinese government, but this will serve as a benchmark for pricing debt sales by other Chinese borrowers, some of them far more opaque.

Too late.

If the Treasury General Account on the Fed’s balance sheet is replenished to late 2016 levels and the Fed begins to taper, bank reserves will be extinguished and dollar liquidity is going to tighten significantly in the coming months - as we explained here.

With about $10 trillion of offshore dollar debt – with maybe a $1-2 trillion belonging to China -  this will make it more difficult for EM banks to roll dollar funding. China’s dollar borrowing by its corporate sector has been on a tear - with Bloomberg reporting record dollar-bond issuance of $144 billion by Chinese companies so far in 2017.

Finally, Bloomberg provided feedback on the Chinese sovereign bonds from analysts and investors.

AllianceBernstein (Brad Gibson) - If you look at CDS, the market has already priced in that China is a stronger credit than Korea. I suspect China could issue a $2 billion bond at any given spread to U.S. Treasuries. There will be strong Asian support for this bond as it is the first China sovereign dollar issue since 2004. Ultimately, China’s ability to service a $2 billion bond is unquestionable.

 

ANZ (Owen Gallimore) - We see the technical driven fair value as T5+20 (2.2% yield) and T10+25 (2.7%), a relatively flat 15bp Z-spread curve, with our expectation of non-Chinese demand for this ‘collector’s item’ in primary and onshore ‘policy’ demand in secondary. These levels would be moderately tighter than the similarly-rated Chile and Israel but more befitting China’s status in the world and proven policy firepower

 

Bank of Singapore (Todd Schubert) - The announced IPT is in line with our expectation. Given the still strong bid for Emerging Market bonds, the scarcity value of a Chinese sovereign bond and the favorable capital treatment from the HKMA, we believe that pricing will ultimately settle on the tight end of initial price guidance.

 

Columbia Threadneedle (Clifford Lau) - A lot of expectations and enthusiasm are built into this offering, so there’s been tightening of spreads going into the deal. We have taken some positions in the quasi-sovereign area, and would certainly consider participating in the new USD bonds offering, partly because it’s a rare and small deal.

 

Pimco (Luke Spajic) - Coming straight after the 19th Party Congress, the timing of issuance was spot on. The upbeat tone of the congress will be mirrored in the demand for bonds. Though the deal size is relatively modest, the symbolic nature of this issuance will give state owned enterprises, and banks, a marker for valuation. Over time, we would like to see a full sovereign curve be established with longer maturities. Demand will outstrip supply by significant multiple, so pricing is going to be at the tighter end. No surprise there.

 

JPMorgan Private Bank (Anne Zhang) The 10 year is in line with the comps released. In context, 5 year appears generous, however, I’d expect final pricing to be tighter from IPT. The market has built up the hype in the last week with very high expectation of very tight spread.

 

Nomura (Nicholas Yap) - Given the relatively small deal size (just USD2bn in total) and the fact that it will likely be well anchored by domestic financial institutions, China essentially possesses the ability to print the new bonds wherever it wants, and estimating fair value (FV) is arguably more of an academic exercise, one that we will nevertheless attempt to undertake! Comparing with suitable Asian and global sovereign peers, Nomura estimates fair value for the new China 5Y/10Y at around 25bp/35bp over Treasuries

Illinois' Kamikaze Bondholders Cheer Massive New $6 Billion Bond Deal: "It Has Turnaround Potential"

Just two days ago we wrote about how, despite a budget deal signed back in July that called for a massive tax hike, Illinois" unpaid payables balance had ballooned to a new all-time record high of $16,046,145,423.20 according the comptroller"s office (see: Illinois Unpaid Vendor Backlog Hits A New Record At Over $16 Billion). 

...which was a 3-fold increase over the past two years.

Given that, you can imagine our surprise to wake up to the latest Illinois Bloomberg headline this morning declaring that all is well in the Prairie State and that bondholders are cheering the upcoming, massive $6 billion new GO bond deal by driving existing bonds to all-time highs.

As Illinois prepares for what may be its biggest debt sale in over a decade, its largest investors are celebrating a rally that’s transformed the state’s bonds from one of this year’s worst performers to one of the best.

Since the state in July resolved a two-year budget impasse that pushed its rating to the brink of junk, debt issued by Illinois and its local governments has vaulted to a 7 percent return this year, more than any other state, according to S&P Municipal Bond Indices. Until June 8, they were the worst performer among the five most-indebted states, which include Texas, California, Florida and New York.

The reversal came after lawmakers enacted a budget -- and raised taxes -- over Governor Bruce Rauner’s objections. They also extended Illinois authority to reduce a record pile of leftover bills by selling as much as $6 billion of bonds. It would be the state’s biggest sale since 2003 if done in a single offering.

Even more surprising was some of the praise offered up by asset managers on a state that, for all practical purposes, appears to be on a inevitable crash course with bankruptcy...this takes "talking your book" to a whole new level.

Nuveen Investments:  “It has turnaround potential,” said John Miller, co-head of fixed-income at Nuveen, which bought more Illinois bonds in late June and July as the budget came together. The firm plans to take a “hard look” at the $6 billion borrowing, calling it a “benchmark-type deal” because it may be one of the largest of the year, according to Miller, who cautioned that the state’s rising pension-fund debts are still posing risks

AllianceBernstein:  “They’ve stopped the bleeding,” said Guy Davidson, director of municipal investments at AllianceBernstein. He said the firm is interested in buying more Illinois debt. “It’s not like we think they have solved their problems. We just think they’ve stabilized their problems.” Davidson said investors are “getting paid more than we think the risk entails”

Wells Fargo Asset Management:  “They’re not under the gun as much as far as ratings go,” saidDennis Derby, a portfolio manager at Wells, which holds $40 billion of municipal debt. The firm would be “more comfortable” if the state took action soon to reduce the $16 billion of unpaid bills

BlackRock:  The tax hike gives the state “more tools” to meet their expenses and obligations, marking an improvement, said Joe Gankiewicz, a credit-research analyst in Princeton, New Jersey, for the company, which oversees about $124 billion of municipal debt. The state’s unfunded retirement liabilities -- $130 billion, according to the Commission on Government Forecasting and Accountability -- remain an issue. “The pension expense is likely to outstrip the organic revenue growth in the state in the coming years,” Gankiewicz said

Perhaps these bondholders overlooked the fact that Illinois" 5 largest publicly-funded pensions are now $130BN underwater and only 37.6% funded?

Ironically, bondholders cheered tax hikes as the savior of Illinois" financial problems but repeated income tax hikes, property tax hikes and the state’s political dysfunction have resulted in record population losses over the last three years...

...to put it into perspective, Illinois loses 1 resident every 4.6 minutes.

Last time we checked, non-residents weren"t on the hook to pay Illinois taxes...

Tesla Stock Slumps After "Terrible Bond" New Issue Tanks

Tesla stock prices has almost erased all of its post-earnings gains as the company"s recently issued $1.8 billion junk bond is tumbling...

TSLA stocks is giving back its post-record-cash-burn gains...

As the newly issued junk bonds are suddenly coming face to face with this ugliness...

As MarketWatch reports, the 5.3% notes due 2025 are now trading as high as 5.75% yield (with the risk spread blowing out from 330 to around 370bps)

AllianceBernstein’s Distenfeld said investors are still starving for income in a low-interest rate, low-yielding world, and said it is important to be patient -- and disciplined -- in this market.

“Tesla was an aggressive deal for a company that is not expected to be cash-flow positive for years,” said Gershon Distenfeld, head of credit at asset manager AllianceBernstein.

 

 “At just over 5%, it is not a great risk return,” he said.

“There are companies coming to market that shouldn’t be issuing at all, so you have to watch out,” he said.

“The same is happening in the bank loan market, people are afraid of rising rates and enamored of floating-rate debt, so underwriting quality is changing.”

This seemed to sum things up perfectly though...

“Anyone who looks at a lot of high-yield bonds would expect more robust protection against future debt,” Valerie Potenza, head of high-yield research at Xtract Research, a sister company of Debtwire, told MarketWatch ahead of the sale.

“We think it’s a terrible bond, but people seem blinded by the Tesla story.”

Blinded indeed...

"Mystery" Central Bank Buyer Revealed: SNB Now Owns A Record $84 Billion In US Stocks

In the second quarter of the year, one in which unlike in Q1 fund flows showed a persistent and perplexing outflow from US stocks and into European and Emerging Markets, a trading desk rumor emerged that even as institutional traders dumped stocks and retail investors piled into ETFs, a "mystery" central bank was quietly bidding up risk assets by aggressively buying stocks. And no, it was not the BOJ: the Japanese Central Bank"s interventions in the stock market are familiar to all by now, and for the most part the BOJ keeps its interventions local, mostly propping up Japanese stocks, whether the Nikkei 225 or the Topix.

The answer was revealed this morning when the hedge fund known as the "Swiss National Bank" posted its latest 13-F holdings. What it showed is that, as rumored, the Swiss National Bank had gone on another aggressive buying spree in the second quarter, and following its record purchases in the first quarter, the central bank boosted its total equity holdings to an all time high $84.3 billion, up 5% or $4.1 billion from the $80.4 billion at the end of the first quarter.

As reported last week, the Swiss central bank has accumulated foreign exchange worth 714.3 billion francs (over $740 billion) due to its ongoing interventions to depress the Swiss franc, and has "invested" those funds created out of thin air in stocks and bonds. At the end of the second quarter, it held 20% in equities, of which the bulk was in US stocks.

While we are far beyond the point of debating central bank intervention in equity markets (we do want to remind readers that until several years ago, it was considered "fake news" to even mention it, and those who accused central bankers of manipulating stock markets were said to be paranoid tinfoil basement dwellers), we want to point out that unlike the BOJ, which at least keeps its capital markets distortion local, the SNB, which likewise creates money out of thin air (then sells it for dollars in an attempt to keep the Swiss franc depressed) is actively causing substantial price distortions in the US.

While we doubt this will be investigated with stocks are at all time highs, we look forward to the Congressional hearings after the crash when the scapegoating and fingerpointing begins, and everyone is "stunned" to learn that central banks were responsible for blowing the biggest asset bubble the world has ever seen by directly buying stocks.

What else did the SNB reveal in its 13F? Two main things.

First, its top 20 holdings are as shown in the following chart. The central bank was clearly not shy in adding to its top positions, especially the top position, which increased as a result of both appreciation and new purchases.

And while we have yet to learn if Warren Buffett was actively frontrunning the SNB once again during the quarter, similarly to his activity in Q1 when he more than doubled his AAPL stake making him a top 5 holder of the tech giant, a look at the SNB"s holdings of AAPL stock which again increased from 18.9 to 19.2 million shares, making it a larger holder of AAPL stock than Schwab and Franklin Resources (with 18.3 and 17.8 million shares respectively), and just behind AllianceBernstein, shows why the Nasdaq has until recently been hitting new all time highs on a daily basis.

The chart above may also explain why Goldman, despite warning of rising worries about record low volatility remains bullish on the Nasdaq 100: after all, when a central bank can and does create money out of thin air, then splurges on the handful of tech companies that have the biggest impact on the broader market, pushing both the Nasdaq and all indices higher, what is the point of even talking about "risk"?

Source: SNB 13-F

The Bilderberg 2017 Agenda: "The Trump Administration - A Progress Report"

Every year, the world"s richest and most powerful business executives, bankers, media heads and politicians sit down in some luxurious and heavily guarded venue, and discuss how to shape the world in a way that maximizes profits for all involved, while perpetuating a status quo that has been highly beneficial for a select few, even if it means the ongoing destruction of the middle class. We are talking, of course, about the annual, and always secretive, Bilderberg meeting.

And just like last year"s meeting in Dresden, the primary topic on the agenda of this year"s 65th Bilderberg Meeting which starts today and ends on Sunday, is one: Donald Trump.

Ironically, this year "the storm around Donald Trump" as the SCMP puts it, is not half way around the world, but just a few miles west of the White House, in a conference centre in Chantilly, Virginia, where the embattled president will be getting his end-of-term grades from the people whose opinion actually matters: some 130 participating "Bilderbergs".

The secretive three-day summit of the political and economic elite kicks off Thursday in heavily guarded seclusion at the Westfields Marriot, a luxury hotel a short distance from the Oval Office.

As of Wednesday, the hotel was already on lockdown and an army of landscapers have been busy planting fir trees around the perimeter, to try protect "coy billionaires and bashful bank bosses" from prying lenses and/or projectiles.  Perched ominously at the top of the conference agenda this year are these words: “The Trump Administration: A progress report”.

So is the president going to be put in detention for tweeting in class? Held back a year? Or told to empty his locker and leave? If ever there’s a place where a president could hear the words “you’re fired!”, it’s Bilderberg.

Sarcasm aside, the White House was taking no chances, sending along some big hitters from Team Trump to defend their boss: national security adviser, HR McMaster; the commerce secretary, Wilbur Ross; and Trump’s new strategist, Chris Liddell (curiously, neither Gary Cohn nor Steven Mnuchin will be there although the controversial new Chairman of Goldman Sachs International, Jose Barroso will be present). Could Trump himself show up to receive his report card in person: we are confident he will tweet all about it... which is probably why he will never be invited.

Stil, none other than Henry Kissinger, the gravel-throated kingpin of Bilderberg, visited the White House a few weeks ago to discuss “Russia and other things”, and certainly, the Bilderberg conference would be the perfect opportunity for the most powerful man in the world to discuss important global issues with Trump.

Sarcasm aside, what are among the "Trump agenda" items to be discussed?  The publicly list is as follows:

• The Trump Administration: A progress report


• Trans-Atlantic relations: options and scenarios


• The Trans-Atlantic defence alliance: bullets, bytes and bucks


• The direction of the EU


• Can globalisation be slowed down?


• Jobs, income and unrealised expectations


• The war on information


• Why is populism growing?


• Russia in the international order


• The Near East


• Nuclear proliferation


• China


• Current events

The US president’s extraordinary chiding of NATO leaders in Brussels is sure to be first and foremost on the Bilderberg discussing panel. The Bilderbergers have summoned the head of Nato, Jens Stoltenberg, to give feedback. Stoltenberg will be leading the snappily titled session on “The Transatlantic defence alliance: bullets, bytes and bucks”. He’ll be joined by the Dutch minister of defence and a clutch of senior European politicians and party leaders, all hoping to reset the traumatised transatlantic relationship after Trump’s galumphing visit.

As the Guardian puts it, the guest list for this year’s conference is a veritable “covfefe” of big-hitters from geopolitics, from the head of the IMF, Christine Lagarde, to the king of Holland, but perhaps the most significant name on the list is Cui Tiankai, China’s ambassador to the US.

According to the meeting’s agenda, “China” will also be discussed at a summit attended by Cui, the US commerce secretary, the US national security adviser, two US senators, the governor of Virginia, two former CIA chiefs and any number of giant US investors in China, including the heads of the financial services firms the Carlyle Group and KKR. And for good reason: as last night"s PMI numbers showed, the Chinese economy - the global growth dynamo - is finally contracting. If China goes, the rest of the world will follow. 

Additionally, the boss of Google Eric Schmidt, who warned in January that Trump’s administration will do “evil things”, is expected to attend, too. The executive chairman of Alphabet, Google’s holding company, has just come back from a trip to Beijing, where he was overseeing Google AI’s latest game of Go against humans. He declared it “a pleasure to be back in China, a country that I admire a great deal”. It’s possible three days spent chatting to the Chinese ambassador could even be good for business.

Several journalists are participating in this year’s forum, including London Evening Standard editor George Osborne and Cansu Camlibel, the Washington bureau chief for Turkey’s Hurriyet newspaper. But per convention, news outlets are not invited to cover the event.

“There is no desired outcome, no minutes are taken and no report is written,” the group stated. “Furthermore, no resolutions are proposed, no votes are taken, and no policy statements are issued.”

Ex-deputy secretary of state William Burns and former deputy assistant secretary of defence Elaine Bunn, both Obama-era officials, will also attend. Burns, the current president of the Carnegie Endowment for International Peace, has warned that Trump “risks hollowing out the ideas, initiative and institutions on which US leadership and international order rest.”

With one of the agenda items titled simply enough "can globalisation be slowed down?" it is no surprise that anti-globalisation protesters have already descended on the location of the meeting.

* * *

Below is a full list of this year"s participants:

CHAIRMAN

• Castries, Henri de (FRA), Former Chairman and CEO, AXA; President of Institut Montaigne

 
PARTICIPANTS

• Achleitner, Paul M. (DEU), Chairman of the Supervisory Board, Deutsche Bank AG


• Adonis, Andrew (GBR), Chair, National Infrastructure Commission


• Agius, Marcus (GBR), Chairman, PA Consulting Group


• Akyol, Mustafa (TUR), Senior Visiting Fellow, Freedom Project at Wellesley College


• Alstadheim, Kjetil B. (NOR), Political Editor, Dagens Næringsliv


• Altman, Roger C. (USA), Founder and Senior Chairman, Evercore


• Arnaut, José Luis (PRT), Managing Partner, CMS Rui Pena & Arnaut


• Barroso, José M. Durão (PRT), Chairman, Goldman Sachs International


• Bäte, Oliver (DEU), CEO, Allianz SE


• Baumann, Werner (DEU), Chairman, Bayer AG


• Baverez, Nicolas (FRA), Partner, Gibson, Dunn & Crutcher


• Benko, René (AUT), Founder and Chairman of the Advisory Board, SIGNA Holding GmbH


• Berner, Anne-Catherine (FIN), Minister of Transport and Communications


• Botín, Ana P. (ESP), Executive Chairman, Banco Santander


• Brandtzæg, Svein Richard (NOR), President and CEO, Norsk Hydro ASA


• Brennan, John O. (USA), Senior Advisor, Kissinger Associates Inc.


• Bsirske, Frank (DEU), Chairman, United Services Union


• Buberl, Thomas (FRA), CEO, AXA


• Bunn, M. Elaine (USA), Former Deputy Assistant Secretary of Defense


• Burns, William J. (USA), President, Carnegie Endowment for International Peace


• Çakiroglu, Levent (TUR), CEO, Koç Holding A.S.


• Çamlibel, Cansu (TUR), Washington DC Bureau Chief, Hürriyet Newspaper


• Cebrián, Juan Luis (ESP), Executive Chairman, PRISA and El País


• Clemet, Kristin (NOR), CEO, Civita


• Cohen, David S. (USA), Former Deputy Director, CIA


• Collison, Patrick (USA), CEO, Stripe


• Cotton, Tom (USA), Senator


• Cui, Tiankai (CHN), Ambassador to the United States


• Döpfner, Mathias (DEU), CEO, Axel Springer SE


• Elkann, John (ITA), Chairman, Fiat Chrysler Automobiles


• Enders, Thomas (DEU), CEO, Airbus SE


• Federspiel, Ulrik (DNK), Group Executive, Haldor Topsøe Holding A/S


• Ferguson, Jr., Roger W. (USA), President and CEO, TIAA


• Ferguson, Niall (USA), Senior Fellow, Hoover Institution, Stanford University


• Gianotti, Fabiola (ITA), Director General, CERN


• Gozi, Sandro (ITA), State Secretary for European Affairs


• Graham, Lindsey (USA), Senator


• Greenberg, Evan G. (USA), Chairman and CEO, Chubb Group


• Griffin, Kenneth (USA), Founder and CEO, Citadel Investment Group, LLC


• Gruber, Lilli (ITA), Editor-in-Chief and Anchor "Otto e mezzo", La7 TV


• Guindos, Luis de (ESP), Minister of Economy, Industry and Competiveness


• Haines, Avril D. (USA), Former Deputy National Security Advisor


• Halberstadt, Victor (NLD), Professor of Economics, Leiden University


• Hamers, Ralph (NLD), Chairman, ING Group


• Hedegaard, Connie (DNK), Chair, KR Foundation


• Hennis-Plasschaert, Jeanine (NLD), Minister of Defence, The Netherlands


• Hobson, Mellody (USA), President, Ariel Investments LLC


• Hoffman, Reid (USA), Co-Founder, LinkedIn and Partner, Greylock


• Houghton, Nicholas (GBR), Former Chief of Defence


• Ischinger, Wolfgang (INT), Chairman, Munich Security Conference


• Jacobs, Kenneth M. (USA), Chairman and CEO, Lazard


• Johnson, James A. (USA), Chairman, Johnson Capital Partners


• Jordan, Jr., Vernon E. (USA), Senior Managing Director, Lazard Frères & Co. LLC


• Karp, Alex (USA), CEO, Palantir Technologies


• Kengeter, Carsten (DEU), CEO, Deutsche Börse AG


• Kissinger, Henry A. (USA), Chairman, Kissinger Associates Inc.


• Klatten, Susanne (DEU), Managing Director, SKion GmbH


• Kleinfeld, Klaus (USA), Former Chairman and CEO, Arconic


• Knot, Klaas H.W. (NLD), President, De Nederlandsche Bank


• Koç, Ömer M. (TUR), Chairman, Koç Holding A.S.


• Kotkin, Stephen (USA), Professor in History and International Affairs, Princeton University


• Kravis, Henry R. (USA), Co-Chairman and Co-CEO, KKR


• Kravis, Marie-Josée (USA), Senior Fellow, Hudson Institute


• Kudelski, André (CHE), Chairman and CEO, Kudelski Group


• Lagarde, Christine (INT), Managing Director, International Monetary Fund


• Lenglet, François (FRA), Chief Economics Commentator, France 2


• Leysen, Thomas (BEL), Chairman, KBC Group


• Liddell, Christopher (USA), Assistant to the President and Director of Strategic Initiatives


• Lööf, Annie (SWE), Party Leader, Centre Party


• Mathews, Jessica T. (USA), Distinguished Fellow, Carnegie Endowment for International Peace


• McAuliffe, Terence (USA), Governor of Virginia


• McKay, David I. (CAN), President and CEO, Royal Bank of Canada


• McMaster, H.R. (USA), National Security Advisor


• Micklethwait, John (INT), Editor-in-Chief, Bloomberg LP


• Minton Beddoes, Zanny (INT), Editor-in-Chief, The Economist


• Molinari, Maurizio (ITA), Editor-in-Chief, La Stampa


• Monaco, Lisa (USA), Former Homeland Security Officer


• Morneau, Bill (CAN), Minister of Finance


• Mundie, Craig J. (USA), President, Mundie & Associates


• Murtagh, Gene M. (IRL), CEO, Kingspan Group plc


• Netherlands, H.M. the King of the (NLD)


• Noonan, Peggy (USA), Author and Columnist, The Wall Street Journal


• O"Leary, Michael (IRL), CEO, Ryanair D.A.C.


• Osborne, George (GBR), Editor, London Evening Standard


• Papahelas, Alexis (GRC), Executive Editor, Kathimerini Newspaper


• Papalexopoulos, Dimitri (GRC), CEO, Titan Cement Co.


• Petraeus, David H. (USA), Chairman, KKR Global Institute


• Pind, Søren (DNK), Minister for Higher Education and Science


• Puga, Benoît (FRA), Grand Chancellor of the Legion of Honor and Chancellor of the National Order of Merit


• Rachman, Gideon (GBR), Chief Foreign Affairs Commentator, The Financial Times


• Reisman, Heather M. (CAN), Chair and CEO, Indigo Books & Music Inc.


• Rivera Díaz, Albert (ESP), President, Ciudadanos Party


• Rosén, Johanna (SWE), Professor in Materials Physics, Linköping University


• Ross, Wilbur L. (USA), Secretary of Commerce


• Rubenstein, David M. (USA), Co-Founder and Co-CEO, The Carlyle Group


• Rubin, Robert E. (USA), Co-Chair, Council on Foreign Relations and Former Treasury Secretary


• Ruoff, Susanne (CHE), CEO, Swiss Post


• Rutten, Gwendolyn (BEL), Chair, Open VLD


• Sabia, Michael (CAN), CEO, Caisse de dépôt et placement du Québec


• Sawers, John (GBR), Chairman and Partner, Macro Advisory Partners


• Schadlow, Nadia (USA), Deputy Assistant to the President, National Security Council


• Schmidt, Eric E. (USA), Executive Chairman, Alphabet Inc.


• Schneider-Ammann, Johann N. (CHE), Federal Councillor, Swiss Confederation


• Scholten, Rudolf (AUT), President, Bruno Kreisky Forum for International Dialogue


• Severgnini, Beppe (ITA), Editor-in-Chief, 7-Corriere della Sera


• Sikorski, Radoslaw (POL), Senior Fellow, Harvard University


• Slat, Boyan (NLD), CEO and Founder, The Ocean Cleanup


• Spahn, Jens (DEU), Parliamentary State Secretary and Federal Ministry of Finance


• Stephenson, Randall L. (USA), Chairman and CEO, AT&T


• Stern, Andrew (USA), President Emeritus, SEIU and Senior Fellow, Economic Security Project


• Stoltenberg, Jens (INT), Secretary General, NATO


• Summers, Lawrence H. (USA), Charles W. Eliot University Professor, Harvard University


• Tertrais, Bruno (FRA), Deputy Director, Fondation pour la recherche stratégique


• Thiel, Peter (USA), President, Thiel Capital


• Topsøe, Jakob Haldor (DNK), Chairman, Haldor Topsøe Holding A/S


• Ülgen, Sinan (TUR), Founding and Partner, Istanbul Economics


• Vance, J.D. (USA), Author and Partner, Mithril


• Wahlroos, Björn (FIN), Chairman, Sampo Group, Nordea Bank, UPM-Kymmene Corporation


• Wallenberg, Marcus (SWE), Chairman, Skandinaviska Enskilda Banken AB


• Walter, Amy (USA), Editor, The Cook Political Report


• Weston, Galen G. (CAN), CEO and Executive Chairman, Loblaw Companies Ltd and George Weston Companies


• White, Sharon (GBR), Chief Executive, Ofcom


• Wieseltier, Leon (USA), Isaiah Berlin Senior Fellow in Culture and Policy, The Brookings Institution


• Wolf, Martin H. (INT), Chief Economics Commentator, Financial Times


• Wolfensohn, James D. (USA), Chairman and CEO, Wolfensohn & Company


• Wunsch, Pierre (BEL), Vice-Governor, National Bank of Belgium


• Zeiler, Gerhard (AUT), President, Turner International


• Zients, Jeffrey D. (USA), Former Director, National Economic Council


• Zoellick, Robert B. (USA), Non-Executive Chairman, AllianceBernstein L.P.

Natrually, the secretive nature of the group has given birth to conspiracy theories. Some have claimed that the Bilderberg is a group of rich and powerful kingmakers seeking to impose a one world government. Whether that is true remains in the eye of the beholder, however one thing is clear: as the graph below shows, the members are connected to virtually every important and relevant organization, media outlet, company and political entity in the world.

Some Of The Funds Losing Billions In Puerto Rico's Historic Bankruptcy

In the aftermath of Puerto Rico"s historic bankruptcy, a clearer picture of losses accrued by U.S. mutual funds on their holdings of Puerto Rican debt is beginning to emerge: the WSJ has calculated the red ink at as much as $5.4 billion over the last five years on total holdings of $14.6 billion.  Wall Street"s paper of record lists the funds who have piled up losses, both realized and unrealized, on the trade. These include: Franklin Resources, Oppenheimer, Vanguard, Goldman Sachs Asset Management, Western, Lord, Abbett, AllianceBernstein and Dreyfus.

Of these, Franklin and Oppenheimer are the biggest losers, according to Morningstar data cited by the Journal. Oppenheimer has lost as much as $2.1 billion, and Franklin as much as $1.6 billion. That"s compared with AUMs of $230 billion and $741 billion, respectively.

Meanwhile, six other fund families managed by Vanguard, Goldman, Western Asset, Lord Abbett, AllianceBernstein Holding and Dreyfus have racked up between $100 million and $200 million in losses each.

Of course, in the grand scheme of the funds" AUMs, the losses so far are negligible, so before retail investors assume that Meredith Whitney"s prediction is finally coming true, resulting in another muni fund panic, it is worth recalling that all these funds have at least $100 billion each in muni-bond assets under management.  Furthermore, these investors are likely in better shape than some of their hedge fund colleagues as the damage done to mutual funds, and by extension the retirees and middle-class savers to which they cater, will be an important factor in the court-mandated restructuring of the island"s debt, which begins Wednesday with a hearing in San Juan.

As a reminder, earlier this month, the island"s governing body petitioned for - and its federal oversight board approved - its own version of bankruptcy protection under Title III of a rescue law passed by Congress late last year. 

The mutual funds will have a greater incentive to agitate for maximum recovery especially since they purchased debt closer to par values.  Mutual funds were the most heavily invested in Puerto Rican debt, tempted by attractive yields - 8% at the last issuance of GOs in 2014 - along with an exemption from federal taxes.

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Meanwhile, Bloomberg reports that as the island"s restructuring progresses, creditors of Puerto Rico"s insolvent government development bank today agreed to accept losses by exchanging their bonds for new securities, moving the island another step toward restructuring its crushing debt load. Under the agreement, bondholders would exchange their debts at 55 percent, 60 percent or 75 percent of face value, depending on whether they elected to receive higher interest payments or the prospect of a greater recovery through debt with less legal claim to the bank’s cash, according to terms disclosed in a bond filing.

The deal comes less than two weeks after Puerto Rico initiated bankruptcy-like proceedings, giving it power to have debts dismissed in U.S. court if creditors don’t voluntarily agree to accept less than they’re owed. Puerto Rico has already reached a similar agreement with creditors of the government electric company and officials have said they intend to continue negotiating with investors.

"This agreement is an example that the government is regaining the credibility it had lost over the past few years,” Rossello said. “We are satisfied with this agreement.”

Debt could be issued for first-lien bonds at 55 percent of par with 7.5 percent coupons, or 60 percent of par with 5.5 percent coupons. Those electing for subordinate bonds would get 75 percent of par and coupons of 3.5 percent. New issuer will receive assets of GDB, with a book value of $5.3 billion.

Despite the enforced bondholder haircuts, the agreement would allow creditors to recoup more of their investment than current trading prices suggest. Government Development Bank bonds due in August traded Monday for an average of 24.3 cents on the dollar.

The negotiation has a long way to go: Governor Ricardo Rossello said at a press conference Monday that 45% of bondholders have so far consented to the restructuring. Under the federal emergency rescue law that allows for Puerto Rico to legally cut its debts, any voluntary agreement must be approved by a two-thirds vote of bondholders.

Today"s deal included the so-called ad hoc group, comprised mostly of hedge funds managed by Avenue Capital Management, Brigade Capital Management, Fir Tree Partners and Solus Alternative Asset Management, as well as local bondholders.

And speaking of hedge funds, as we documented previously, here"s a rundown of the other biggest losers, which include a handful of hedge funds and bond insurers - not to mention the Puerto Rican people, about half of whom live in poverty and will likely be forced to cope with cuts to basic services mandated by an austerity regime not unlike those seen across Europe.

• General Obligation bondholders include: Aurelius Capital Management, Autonomy Capital and Monarch Alternative Capital LP,


• Sales tax revenue-backed (Cofinas) bondholders: Scoggin Capital Management, GoldenTree Asset Management, Merced Capital, Tilden Park and Whitebox Advisors have held Cofinas.


• Bonds insurers: roughly $12 billion of the island’s $70 billion in outstanding debt is insured. It will be up to the bond insurers to fill the gap when interest and maturity payments are missed. Insurers backed a wide swath of bonds from Puerto Rico, complicating the island’s ability to prioritize payments. Among the companies with the biggest exposure to Puerto Rico debt include Ambac Financial Group, National Public Finance Guarantee Corporation, Assured Guaranty Ltd. and Financial Guaranty Insurance Company.

PR"s constitution requires the government to pay back GO bondholders in full, and the island has already offered a restructuring that favored GO bonds, over COFINAs, which are backed by tax revenue. However, other recent municipal bankruptcy cases have seen GO investors accept huge losses, according to data from Moody"s Investors Service.

• In Harrisburg, Pennsylvania, bondholders took a 25 cents on the dollar haircut


• In Stockton, California, the haircut was 50 percent.


• In Detroit, where pensioners suffered losses of about 18 percent, bondholders were slapped with a 75% haircut, taking home just 25 cents on the dollar.

Despite this, Moody"s rates PR"s GO and COFINA debt on equal footing, forecasting holders of both securities will recoup between 65 and 80 cents on the dollar, higher than the less than 35 cents expected for holders of debt from Puerto Rican agencies like the Government Development Bank.

With much left undecided, it"s pointless at this stage to anticipate how long this case may take, and what any final settlement might look like; nobody can say for sure whether the courts will find that they have the legal authority to issue a ruling. At some point, the Supreme Court may need to make a ruling.

Stock investors, for one, appear to be biding their time: While Detroit"s decision to file for bankruptcy back in 2013 shook markets, the Puerto Rican newsflow has barely registered outside of muniland.