Seth Klarman, the value investing giant who draws comparisons to Warren Buffett, is telling his clients it is in Puerto Rico's interest to pay its debt.
Klarman's hedge fund, Baupost, owned $911 million of the island's bonds through Decagon Holdings entities, according to a July public court filing. The bonds were issued by the Puerto Rico Sales Tax Financing Corp., which goes by the acronym COFINA.
"Baupost first purchased COFINA bonds in the secondary market in 2015, with our most recent purchases made in 2017 before Hurricane Maria hit Puerto Rico," Klarman wrote in an investor letter Wednesday obtained by CNBC.
"Our investment was premised on deep fundamental research both around the Commonwealth's ability to repay its obligations as well as a legal analysis regarding the priority and property rights of COFINA bonds relative to other debt issues with respect to valuable collateral," the letter said.
Last month the island was hit by Hurricane Maria, a Category 4 storm that left widespread devastation and wiped out electric power for most of the population. Puerto Rico currently has more than $70 billion in debt and is already in a type of bankruptcy status as it tries to negotiate with creditors.