When presidential hopeful Marco Rubio announced last month that he opposed letting Puerto Rican government entities declare bankruptcy, he said he that didn't believe in a "silver bullet solution," and Puerto Ricans should tighten their belts.
The junior senator for Florida didn't mention that his campaign had received thousands of dollars from hedge fund executives who would lose big if the commonwealth is allowed to declare bankruptcy.
According to public campaign-finance documents, at least six executives of hedge funds that hold Puerto Rican debt have donated to Rubio's presidential campaign. Rubio appears to be among the only major presidential candidates who has explicitly opposed bankruptcy reform for Puerto Rico.
The territory, which is facing a steep debt crisis, currently doesn't have the legal ability to declare bankruptcy. President Obama, Hillary Clinton, Jeb Bush, and others have proposed reforms allowing municipalities and public corporations on the island to declare bankruptcy under Chapter Nine, a right local governments in all 50 states have.
That would be bad news for the hedge funds who hold Puerto Rican debt, which would likely get pennies on the dollar for debt they purchased. A group of hedge funds have called for the island to lay off teachers, close schools, and cut public spending in order to pay back its creditors.
One hedge fund in that group is Monarch Alternative Capital. Its founder and principal, Andrew Herenstein, gave Rubio's campaign the maximum legal contribution of $2,700 in May. He attended a fundraiser for Rubio in June and co-hosted one himself in August, just a few weeks before Rubio announced his position on bankruptcy. After Rubio made his announcement, Herenstein co-hosted another fundraiser earlier this month.
The other donors to Rubio's campaign who are executives at hedge funds that hold Puerto Rican debt are:
- Joshua Friedman of Canyon Capital Partners: with wife Beth, donated $5,400 between 2013 and 2015
- Peter Copses of Apollo Global Management: with wife Judith, donated $5,400 in June 2015
- Lance Milken of Apollo Global Management: with wife Hillary, donated $5,400 in June 2015
- Laurence Berg of Apollo Global Management: with wife Allison, donated $5,400 in June 2015
- Vineet Kapur of Fore Research & Management: donated $500 in June 2015
The Rubio donations were noted in a report by Hedge Clippers, a group that investigates hedge funds, and released to Fusion. The group also participated in protests at the GOP debate last week in Boulder, Colo.
"You can assume that because [Rubio] is using hedge fund money, he is in their pocket, and he is limited in the amount of support that he can provide for Puerto Rico," Julio Lopez Varona, a Puerto Rican activist with Hedge Clippers, told me.
Rubio's campaign questioned the relevance of the hedge fund donations. "This is really silly. We have donors on both sides of this issue," spokesperson Alex Conant said in an email. "When people donate to our campaign, they are signing onto Marco's agenda."
None of the donors responded to requests for comment.
Rubio is hardly the only candidate to receive donations from executives of hedge funds who hold Puerto Rican debt, many of whom regularly fund candidates from both parties. Clinton and Bush, who both support reforms allowing Chapter Nine bankruptcy in Puerto Rico, have also received donations from executives of the funds, with Bush's super PAC (which has raked in much more than Rubio's) receiving hundreds of thousands of dollars. Ted Cruz, who has not addressed Puerto Rico's bankruptcy issues, has received $10,600 from Herenstein and his wife.
But unlike the other candidates, Rubio has a unique position on this issue that would save his donors millions. While Rubio opposes Chapter Nine except as "a last resort" after substantial reforms are made on the island, he's said that he does support reforming some of the unequal tax laws that keep Puerto Ricans from claiming tax credits that other Americans benefit from.
The decision last week by hedge fund tycoon Paul Singer to endorse Rubio—and what many observers see as Singer's ability to drive donations from Wall Street investors—suggests that these hedge fund donations are only the beginning for Rubio, and that he'll soon have more supporters who have interests in preventing bankruptcy reform.
If no bankruptcy is allowed and Puerto Rico defaults, it's not exactly clear what will happen. The government would likely have to cut services and drastically reduce spending in the territory with the highest unemployment in the country. Creditors and government officials have proposed paying some workers below the minimum wage and closing schools in order to pay debt.
Puerto Ricans can't vote in the general election, but they will vote in presidential primaries—the Republican primary in March and the Democratic in June. And there's a substantial Puerto Rican population in Florida, Rubio's home state and a crucial battleground in the general election.
Those voters will be watching Rubio and the other candidates' positions on bankruptcy reform very closely, Lopez Varona said.
"I think there's an irony in him going to Puerto Rico to ask Puerto Ricans to vote for him while at the same time not standing up for Puerto Rico to a point where he doesn't want to give us the same ability that… all the other localities in America have," Lopez Varona said.
Casey Tolan is a National News Reporter for Fusion based in New York City.