The GOP Tax Plan Is Entering Its Make-or-Break Week

The $1.4 trillion item on President Donald Trump’s wish list — a package of tax cuts for businesses and individuals that he has said he wants to sign before year’s end — is headed into the legislative equivalent of a Black Friday scrum next week.

Senate Republican leaders plan a make-or-break floor vote on their bill as soon as Thursday — a dramatic moment that will come only after a marathon debate that could go all night. Democrats are expected to try to delay or derail the measure, and the GOP must hold together at least 50 votes from its thin, 52-vote majority in order to prevail.

Their chances improved this week when Republican Senator Lisa Murkowski of Alaska said she’ll support repealing the “individual mandate” imposed by Obamacare — a provision that Senate tax writers are counting on to help finance the tax cuts. Murkowski had earlier signaled some reservations about the provision; and her support was widely viewed as a positive sign for the tax bill’s chances.

Trump is scheduled to address Senate Republicans at their weekly luncheon Tuesday afternoon on taxes and the legislative agenda for the rest of the year, according to a statement from Senator John Barrasso, chairman of the Senate Republican Policy Committee. 

The White House previously announced that the president would talk with Republican and Democratic congressional leaders at the White House the same day about an agreement on spending to keep the government open after funding expires on Dec. 8. David Popp, a spokesman for Senate Majority Leader Mitch McConnell, and Drew Hammill, a spokesman for House Democratic leader Nancy Pelosi, both said that meeting is still on the schedule.

If the tax bill clears the Senate — a step that’s by no means guaranteed — lawmakers in both chambers would have to hammer out a compromise between their differing bills, a process that presents potential pitfalls of its own. For now, though, much of the Senate’s attention will focus on its legislation’s price tag.

Three GOP senators — Bob Corker of Tennessee, Jeff Flake of Arizona and James Lankford of Oklahoma — have cited concerns about how the measure would affect federal deficits. Independent studies of the legislation have found that — contrary to its backers’ arguments — its tax cuts won’t stimulate enough growth to pay for themselves. Both the Senate bill, and one that cleared the House earlier this month, would reduce federal revenue over a decade by roughly $1.4 trillion, according to the Joint Committee on Taxation.

On Wednesday, a report from the Penn Wharton Budget Model at the University of Pennsylvania said the bill would reduce federal revenue in each year from 2028 to 2033. That finding would mean it doesn’t comply with a key budget rule that Senate Republican leaders want to use to pass their bill with a simple majority over Democrats’ objections.

Budget Rule

In essence, that rule holds that any bill approved via that fast-track process can’t add to the deficit outside a 10-year budget window. The JCT has already found that the Senate bill would generate a surplus in its 10th year because it has set several tax breaks for businesses and individuals to expire.

But JCT hasn’t yet weighed in publicly on the revenue effects in subsequent years. Senate GOP leaders have expressed confidence that their proposal will satisfy the rule ultimately.

Another potential stumbling block stems from the fact that Congress is trying to act on complex tax legislation under a tight, self-imposed timeline in order to deliver on promises from Trump, House Speaker Paul Ryan and McConnell.

For example, Republican Senator Ron Johnson of Wisconsin has said he can’t support the current Senate bill because it would give corporations a tax advantage — a large rate cut to 20 percent from 35 percent — that other, closely held businesses wouldn’t get.

‘Change the Most’

His concern centers on the Senate’s plan for large partnerships, limited liability companies, sole proprietorships and other so-called “pass-through” businesses. Under current law, these businesses simply pass their earnings to their owners, who pay income taxes at their individual rates — currently, as high as 39.6 percent, depending on how much they earn.

Read more: A QuickTake guide to the tax-cut debate

The Senate bill would provide pass-through owners with a 17.4 percent deduction for income — but in combination with other provisions, that would result in an effective top tax rate for business income that’s more than 10 percentage points higher than the proposed corporate tax rate.

The House bill would use an entirely different approach, setting a top tax rate of 25 percent for pass-through business income, but then limiting how much of a business’s earnings could qualify for that rate.

Reconciling those differences — and addressing Johnson’s concern — may be a complicated process. “That’s part of the equation that could change the most over the next few weeks,” Isaac Boltansky, senior vice president and policy analyst at Compass Point Research and Trading LLC, told Bloomberg Tax. “No one is planning around it yet. There is uncertainty across the board.”

Meanwhile, the Obamacare issue looms in the background — threatening at least one GOP senator’s vote. Susan Collins of Maine said earlier this week that tax bill “needs work,” and “I think there will be changes.”

The 2010 Affordable Care Act — popularly known as Obamacare — contained a provision requiring individuals to buy health insurance or pay a federal penalty. Removing that penalty in 2019, as the Senate tax bill proposes to do, would generate an estimated $318 billion in savings by 2027, according to the Congressional Budget Office. The savings would stem from about 13 million Americans dropping their coverage, eliminating the need for federal subsidies to help them afford it.

Because many of the newly uninsured would be younger, healthier people, insurance premiums would rise 10 percent in most years, the nonpartisan fiscal scorekeeper found.

    Read more: http://www.bloomberg.com/news/articles/2017-11-24/trump-s-1-4-trillion-tax-cut-is-entering-its-make-or-break-week

    Even Illinois’s CFO Doesn’t Know How Many Bills Are Unpaid

    How big is Illinois’s pile of unpaid bills? Even the state’s chief fiscal officer doesn’t know for sure.

    The state sold $4.5 billion of bonds on Wednesday to help pay down the estimated $16.6 billion it owes to contractors, health care providers and others who waited to get paid during Illinois’s record-long fight over the budget. But Comptroller Susana Mendoza, a Democrat, says her office doesn’t know the size of that backlog for sure, and she wants that to change.

    Under current law, state agencies only have to report to the comptroller once a year — on Oct. 1 – the amount of unpaid bills they had by the end of June, making the information already outdated by the time it’s submitted. According to the comptroller’s website, the backlog reached $16.6 billion as of Oct. 24, including an estimated $6.1 billion of unpaid bills with state agencies.

    To get a better picture of how deeply Illinois is in debt, Mendoza is urging lawmakers to override Republican Governor Bruce Rauner’s veto of a measure that will require state agencies to report bills on a monthly basis and include how old the bills are, whether funds have been appropriated to pay those bills and how much interest is owed. The Illinois House of Representatives voted to override the veto on Wednesday. The Senate must do the same for the bill to become law.

    “This is a first step in hopefully even giving the markets greater confidence that Illinois is moving in the right direction when it comes to full transparency on our finances,” Mendoza said in a telephone interview.

    The legislation is “definitely favorable from a credit perspective,” said Eric Friedland, Lord Abbett’s director of municipal research in Jersey City, New Jersey. He noted that the amount of unpaid bills isn’t a surprise to investors who monitor the state’s finances, but requiring monthly reporting may spur Illinois leaders to reduce the number of unpaid bills. 

    “In my opinion, if they have to report every month in a transparent way, then that will hopefully cause this practice to change for the better,” said Friedland, whose firm manages about $20 billion of municipal debt, including some Illinois bonds.

    In his veto message on Aug. 18, Rauner applauded the push for transparency but criticized Mendoza for trying to “micromanage” agencies, adding that they don’t have the technology to meet the requirements in the bill.

    Mendoza disagrees, saying that agencies are equipped to put those numbers together. The bill would help Mendoza keep track of how much interest the state is paying: She estimates that Illinois is already on the hook for $900 million in late-payment penalties.

      Read more: http://www.bloomberg.com/news/articles/2017-10-25/even-illinois-s-cfo-doesn-t-know-how-many-state-bills-are-unpaid

      U.S. Growth at Above-Forecast 3% on Consumers and Businesses

      The U.S. economy expanded at a faster pace than forecast in the third quarter, indicating resilient demand from consumers and businesses even with the hit from hurricanes Harvey and Irma, Commerce Department data showed Friday.

      Key Takeaways

      While GDP grew more than anticipated, analysts look to another key measure to assess the true health of the economy. Final sales to domestic purchasers, which strip out trade and inventories — the two most volatile components of the GDP calculation — climbed 1.8 percent, the slowest since early 2016, after rising 2.7 percent in prior quarter.

      The fallout from the hurricanes was mixed, probably depressing some figures while lifting others. The storms inflicted extensive damage on parts of Texas and Florida, though the effect is likely to be transitory as economic activity is expected to rebound amid rebuilding efforts.

      Consumer spending, which accounts for about 70 percent of the economy, added 1.6 percentage point to growth last quarter. That was driven by motor vehicles, as Americans replaced cars damaged by the storms, while services spending slowed to the weakest pace since 2013. Even so, a steady job market, contained inflation and low borrowing costs are expected to provide the wherewithal for households to sustain their spending.

      The first reading of GDP, the value of all goods and services produced, also showed continued strength in business investment, indicating growth is broadening out to more sources beyond household consumption. Companies are upbeat about the outlook and overseas markets are improving, which may help boost exports and contain the trade deficit.

      At the same time, the details of business investment showed a mixed picture. The decline in investment in structures probably reflects the hit from Hurricane Harvey, especially on oil and gas drilling.

      Residential investment remained a weak spot. Builders are up against a shortage of qualified labor and ready-to-build lots at the same time sales are being held back by a shortage of available properties that’s driving up prices.

      Price data in the GDP report showed inflation picked up while still lagging behind the Federal Reserve’s 2 percent goal. Excluding food and energy, the Fed’s preferred price index — which is tied to personal spending — rose at a 1.3 percent annualized rate last quarter, following a 0.9 percent gain.

      Fed policy makers can point to evidence that growth is steady enough to allow them to keep raising interest rates, with investors expecting a quarter-point increase in December.

      While the economy is probably on solid footing in the ninth year of this expansion, the central bank and many economists expect GDP growth to slow beyond 2018, moving closer to 2 percent rather than the sustained 3 percent pace that the Trump administration says will happen if its tax plan is enacted.

      Economist Views

      “It’s hard to confidently discern the hurricane effects in this report, but the economy seems to be on pretty solid ground,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “The details are reasonably solid. Consumers stepped down a little from the second quarter but their spending still expanded at a decent pace.”

      The gain in equipment investment shows “businesses may be getting a little more confident about the expansion, both here in the U.S. and abroad,” he said. Overall, the report “probably gives a little more confidence to the Fed to hike rates before year-end, but I don’t think it’s a game-changer.”

      Other Details

      • Nonresidential investment — which includes spending on equipment, structures and intellectual property — increased 3.9 percent and added 0.49 percentage point to growth
      • Equipment investment jumped 8.6 percent for a fourth quarter of growth, longest streak since 2014
      • Residential investment fell at a 6 percent rate after 7.3 percent drop, worst two-quarter performance since 2010
      • Net exports added 0.41 percentage point to growth as exports rose, imports fell; inventories added 0.73 point, most since 2016
      • Government spending fell at a 0.1 percent rate; the figures reflected 1.1 percent in federal spending, driven by defense, while state and local outlays dropped 0.9 percent
      • After-tax incomes adjusted for inflation increased at a 0.6 percent annual pace, down from the previous quarter’s 3.3 percent; saving rate fell to 3.4 percent from 3.8 percent
      • GDP report is the first of three estimates for the quarter; the other two are due in November and December as more data become available

        Highlights of Third-Quarter GDP (First Estimate)

        • Gross domestic product grew at a 3% annualized rate (est. 2.6%) following a 3.1% gain in 2Q, best back-to-back quarters since 2014
        • Consumer spending, biggest part of the economy, grew 2.4% (est. 2.1%) after 3.3% in 2Q
        • Business fixed investment rose 1.5%, adding 0.25 ppt to growth; spending on nonresidential structures fell, equipment and intellectual property gained, residential dropped
        • Trade, inventories added a combined 1.14 ppt to growth
        • Commerce Dept. said it can’t estimate hurricanes’ impact on GDP; disaster losses on fixed assets, private and public, totaled about $131.4b

        Read more: http://www.bloomberg.com/news/articles/2017-10-27/u-s-growth-at-above-forecast-3-on-consumer-business-spending

        The Glut of Private Jets Means Insane Bargains for Buyers

        Corporate-jet makers are flooding the market, spurring deep discounts for new aircraft and fueling a three-year slide in prices of used planes.

        Most major manufacturers, including Gulfstream and Bombardier Inc. — which is also contending with rising hurdles in its commercial-jet business — have pared production somewhat in the last couple years as demand for private jets has sagged. But that hasn’t been enough to halt declines in aircraft values, say consultants, brokers and analysts in the $18 billion industry.

        Gone is the optimism stoked by the election of President Donald Trump, a corporate-jet maven with his own Boeing 757, along with hopes for speedy tax cuts that would bolster plane purchases. Instead, the news has been full of setbacks. U.S. Health Secretary Tom Price resigned under fire for his frequent use of private planes at taxpayer expense. General Electric Co. is selling off its corporate fleet to cut costs.

        “The Trump bump is over,” said Janine Iannarelli, a Houston-based plane broker.

        The jet glut is one reason pre-owned prices were down 16 percent in August from a year earlier. With bargains aplenty on machines with few flight hours, manufacturers are cutting deals to entice buyers to purchase new planes. Meanwhile, they keep churning out aircraft and introducing new models.

        “It’s a question of who wants to blink first,” said Rolland Vincent, a consultant who puts together the JetNet iQ industry forecast. “Nobody — because whoever blinks, loses share.”

        A rise in demand for new company planes, which would help stabilize the market, isn’t in the cards. Corporate plane-buying plans have hit a 17-year low, according to an annual survey by Honeywell International Inc. of more than 1,500 flight departments. Companies expect to replace or add planes equivalent to 19 percent of their fleets on average over the next five years, down from 27 percent in last year’s survey.

        Discounts Galore

        The steep discounts on new aircraft are galling customers who paid closer to a full price, said Barry Justice, founder and chief executive officer of Corporate Aviation Analysis & Planning Inc. General Dynamics Corp.’s Gulfstream unit slashed as much as 35 percent off the price of its G450, which is being phased out as the new G500 aircraft nears arrival, Vincent said. The G450 had a list price of about $43 million, according to the Business & Commercial Aviation guide. 

        Bombardier has offered discounts of as much as $7 million on the Challenger 350’s list price of about $26 million as it fends off competitors entering the super midsize space, he said. The weakness across the industry in private-jet sales is adding to the pressure on Bombardier, which is also struggling to sell its C Series commercial planes. The U.S. government slapped import duties of about 300 percent on the single-aisle jetliner in the last two weeks after a complaint by Boeing Co.

        For corporate aircraft, the global market hasn’t fully recovered from the last U.S. recession, when plunging demand popped a bubble that had flooded the industry with more than 1,000 new jet deliveries in both 2007 and 2008. A nascent recovery in 2013 and 2014 fell apart after the price of oil and other commodities collapsed, drying up sales in emerging markets such as Russia and Brazil.

        Deliveries Fall

        Deliveries of new private jets are forecast to drop to 630 this year, from 657 last year and 689 in 2015, according to JPMorgan Chase & Co. The number is forecast to rebound slightly to 640 next year.

        The more conservative pace has done little to relieve the glut, creating a buyer’s market for used aircraft. A five-year-old jet sold in 2016 was worth only 56 percent of its original list price, on average. That’s down from 64 percent in 2012, according to a report by Jetcraft, a plane broker that expects to close more than 80 deals this year. The value retention was as high as 91 percent in 2008.

        Prices for used aircraft right now are “insane,” said Justice. Some companies and wealthy individuals are buying pre-owned aircraft for the first time because the bargains are too good to pass up, he said.

        “There’s a vast overproduction of large-cabin airplanes and there are only so many people in the world who are going to step up and pay $60 million-plus,” he said. “What happens is, people are going to that pre-owned market.”

        New Models

        More new aircraft are on the way. Next year Bombardier will begin selling the Global 7000, which will compete with the Gulfstream G650ER as the largest and longest-range business jet. Textron Inc.’s Cessna unit is close to beginning deliveries on a super midsize plane called the Longitude and is designing its largest-ever aircraft, the Hemisphere. 

        Cessna, which helps customers sell their used aircraft when purchasing a new one, is able to move those planes more quickly than before, said Rob Scholl, chief of sales and marketing with Textron Aviation. For new aircraft, Cessna is focused on “getting some price back into our products,’’ Scholl said.

        “We’re seeing a change in the marketplace,’’ he said. “The activity is really, really strong and I’m positive on where it’s going.’’

        Gulfstream will begin selling the G500 early next year and the G600 later in 2018, both of which are large-cabin aircraft.

        Small Planes

        Smaller aircraft are feeling the pressure as well. Swiss planemaker Pilatus Aircraft Ltd. is set to begin sales of its first business jet — the PC-24 — building on the success of its single-engine turboprop. HondaJet began deliveries at the end of 2015, the first-ever business jet for the Japanese carmaker.

        Those new models should help boost new aircraft sales because they will offer better performance and newer technology than the pre-owned models, which compete for buyers mostly on price, said Ben Driggs, Honeywell Aerospace’s president for the Americas.

        “We are projecting growth in ’18 and growth in ’19 and beyond” for new aircraft deliveries, Driggs said.

        Reaping Gains

        Bombardier pulled back production rates in 2015 after its inventory of new jets began to pile up. The slower pace helped the Canadian company boost operating margins and support pre-owned prices of its planes, spokeswoman Anna Cristofaro said in an email. Bombardier’s sales from business jets were more than twice its revenue from commercial planes last year.

        Gulfstream declined to comment.

        “Our actions in 2015 have yielded results, and Bombardier’s young pre-owned Global model aircraft continue to be among the top performers in the large category in terms of value retention and pre-owned inventory levels,” Cristofaro said.

        That’s a step in the right direction. But the market as a whole will have to wait a little longer for relief.

          Read more: http://www.bloomberg.com/news/articles/2017-10-09/private-jet-glut-spurs-insane-bargains-for-aspiring-buyers

          These Suburbanites May Have No Fracking Choice

          When Bill Young peers out the window of his $700,000 home in Broomfield, Colo., he drinks in a panoramic view of the Rocky Mountains. Starting next year, he may also glimpse one of the 99 drilling rigs that Extraction Oil & Gas Inc. wants to use to get at the oil beneath his home.

          There’s little that Young and his neighbors can do about the horizontal drilling. Residents of the Wildgrass neighborhood own their patches of paradise, but they don’t control what’s under them. An obscure Colorado law allows whole neighborhoods to be forced into leasing the minerals beneath their properties as long as one person in the area consents. The practice, called forced pooling, has been instrumental in developing oil and gas resources in Denver’s rapidly growing suburbs. It’s law in other states, too, but Colorado’s is the most favorable to drilling.

          Now fracking is coming to an upscale suburb, and the prospect of the Wildgrass homeowners being made by state law to do something they don’t want to do has turned many of them into lawyered-up resisters. “It floors me that a private entity could take my property,” says Young, an information security director.

          Many states require 51 percent of owners in a drilling area to consent before the others have to join. Pennsylvania doesn’t allow forced pooling at all in the Marcellus, one of the most prolific shale gas regions in the country. Texas, the center of the nation’s oil production, has strict limits on the practice. Despite its founding cowboy ethos of rugged individualism, Colorado has one of the lowest thresholds. “There’s a tension in oil and gas law between allowing private property owners to develop their mineral estates on their own and the state’s desire to ensure that ultimate recovery of oil and gas is maximized,” says Bret Wells, a law professor at the University of Houston.

          The rise of horizontal drilling and hydraulic fracturing over the past decade has ushered in a modest oil boom on Colorado’s Front Range by enabling companies to wring crude more cheaply from the stubborn shale that runs beneath Denver’s northern suburbs. From 2010 to 2015, Colorado’s crude output almost quadrupled. This year the state is pumping more than 300,000 barrels a day, most of it from the Wattenberg oil field beneath Wildgrass and beyond.

          Colorado’s population is booming, too. As Denver’s suburbs bloom northward into oil and gas territory—Wildgrass is about 20 miles north of Denver, not far from Boulder—housing developments are erupting where once there were only drilling rigs and farmland. And because horizontal drilling can reach as far as 2 miles in all directions from a well, companies need underground access to more land to maximize production from each site. The Colorado Oil & Gas Conservation Commission issues hundreds of pooling orders every year. “It’s an entirely new issue,” says David Neslin, former director of the commission, now an attorney at Davis Graham & Stubbs in Denver. “That’s creating some understandable friction with local governments and local communities.”

          Denver-based Extraction Oil & Gas is at the epicenter of that friction. Although it has rural holdings, a substantial amount of its reserves are located in populated areas. So the company, like others in the region, has put a lot of energy—and cash—into making its operations more palatable to suburbanites who fear the prospect of a drilling rig sprouting up within sight of their kiddie pools. Extraction almost exclusively uses electric drills, which are quieter than diesel-powered, and a new generation of hydraulic fracturing equipment that cuts noise. “It’s incumbent upon us to learn to live with these communities,” says Extraction spokesman Brian Cain. “Where we can go the extra mile to minimize impacts, we wish to do so.”

          The company’s latest project involves drilling 99 horizontal wells in Broomfield. That means leasing mineral rights from Wildgrass residents. Letters went out to some of them last year offering a 15 percent royalty and a $500 signing bonus. Some signed, others demurred, and still others organized a campaign aimed at blocking the project. Extraction hasn’t applied for a forced pooling order, but Young and his neighbors have come to believe it’s inevitable.

          The suburb’s agitation prompted the city to create a special task force to evaluate Extraction’s proposal. The company responded by taking members of the task force on a tour of oil and gas country. It wanted to show how its operations are less disruptive than traditional drill sites.

          Ultimately, the company agreed to more stringent environmental standards than the state requires. It will move some wells 1,300 feet from neighborhoods, almost three times farther than the law mandates. It will reduce the number of wells per site, monitor air emissions as well as water and soil quality, and build pipelines to transport oil immediately off-site instead of storing it in the city. “I can see Broomfield turning out to be a new model for how large-scale development gets done,” says Matt Lepore, director of the state commission, which will rule on Extraction’s applications for siting the wells this month.

          Such concessions have smoothed the path for development in many communities. But for some Wildgrass residents, any leasing is unacceptable. They say they fear accidents, such as the April pipeline explosion that killed two people and destroyed a home in Firestone, 20 miles away. Some simply find the terms of the initial lease offer laughable.

          “The money is so negligible,” says Elizabeth Lario, a health coach who’s lived in Wildgrass since 2005. And then there are property values: Homes in Wildgrass range from $500,000 to more than $1 million. “The royalties won’t offset the drop in property value,” says Stephen Uhlhorn, an engineer who’s lived in Wildgrass for four years. Oil development “is now hitting affluent neighborhoods where people have assets and livelihoods that exceed the value of any royalty they’re offered.”

          The bedrock of Colorado’s oil and gas policy is a 1951 law that says responsible fossil fuel development is in the public interest. The state, the law says, must protect the public from “waste”—industry parlance for oil that’s left in the ground. While Colorado has some of the strictest environmental regulations of any oil-producing state, it gives companies latitude in choosing where to drill. The Colorado Supreme Court has repeatedly held that the state’s interest in developing mineral resources preempts any local law that would curb drilling.

          Efforts to change the statute have fizzled. State Representative Mike Foote, a Democrat whose district is adjacent to Broomfield’s, introduced a bill earlier this year to raise the pooling threshold to 51 percent. It passed the House by a slim margin but died in a Senate committee in a party-line vote, with Republicans opposed. “The oil and gas industry pretty much controls the capital, particularly in the Senate,” Foote says. “Operators can do whatever they want.” Lepore, the head of the state oil commission, concedes the pooling threshold is low compared with other states. “I have no philosophical objection to a 51 percent requirement,” he says. “There are intelligent changes that could be made to the forced pooling law.”

          Young, the Wildgrass resident, received a lease offer last year. Since then he’s been working with a lawyer to consider his options, and so far he doesn’t like them. “You couldn’t put a Walmart where they’re putting these wells—no one would approve that zoning,” he says. “But for some reason, the industry is completely exempt from everything.”

            BOTTOM LINE – In Colorado, whole neighborhoods may have to lease the minerals under their land if just one homeowner agrees.

            Read more: http://www.bloomberg.com/news/articles/2017-10-03/these-suburbanites-may-have-no-fracking-choice

            A hedge fund at Emerging Sovereign Group that has bet against the Chinese economy sunk about 62 percent this year through April.

            The Nexus fund dropped 8.2 percent last month, according to an email to investors seen by Bloomberg News. The April results mark at least the third consecutive month of negative returns for the fund.

            China bears have suffered as economic growth accelerated in the first quarter and officials have been guiding the yuan higher against the dollar in a move that’s caught market watchers by surprise. The Nexus fund gained 35 percent in 2015, profiting from moves by China’s central bank to devalue the yuan by the most since 1994. But the fund has underpeformed since 2016 when it dropped 15.5 percent, Bloomberg has reported.

            ESG is run by co-founders Kevin Kenny, Mete Tuncel and Jason Kirschner, who bought out Carlyle Group LP’s 55 percent stake and took full control of the firm in October. Most of the assets at ESG, which managed $3.5 billion as of December, are in two of its other funds.

            A spokesman for New York-based ESG, which started in 2002 with seed capital from Julian Robertson’s Tiger Management, declined to comment. 

            Puerto Rico Winner

            Candlewood Investment Group’s Puerto Rico SP fund gained 5.7 percent in the first two weeks of May, bringing year-to-date returns to 9.4 percent, according to an investor update seen by Bloomberg. The $105 million fund targets securities including general-obligation bonds, or GOs, and other opportunistic areas within the Puerto Rico municipal bond market. Puerto Rico declared a form of bankruptcy in May.

            "There have been several recent events which we believe confirm our investment positioning and thesis," the $1.2 billion firm said in a separate letter for April. "The most notable was the Commonwealth’s restructuring proposal which clearly prioritized GO and GO guaranteed debt above other bondholders."

            Michael Ardisson, partner and director of business development at Candlewood, declined to comment.

            Millennium Underwhelms

            Millennium Management’s main fund has been posting middling results this year along with its multistrategy peers. The Millennium International fund returned 0.3 percent in April to bring returns for the first four months of the year to an estimated 2.5 percent, according to an investor update seen by Bloomberg.

            Hedge Fund Research Inc.’s multistrategy index rose about 2 percent in that time, as did hedge funds on average.

            The largest driver of the Millennium fund’s performance last month was the relative value fundamental equity strategy, which gained 0.2 percent on the strength of the technology, financials and health-care sectors, the update shows. A spokeswoman for the $35 billion firm run by Izzy Englander declined to comment.

            Read more: http://www.bloomberg.com/news/articles/2017-05-23/esg-china-fund-drops-62-as-candlewood-puerto-rico-pool-jumps-9

            China Stocks Slump, Yuan Falls After Moody’s Cuts Credit Rating

            China’s stocks headed for their lowest level since September, the yuan retreated and default risk increased after Moody’s Investors Service cut its rating on the nation’s debt for the first in almost three decades.

            The Shanghai Composite Index declined 0.8 percent at 10:17 a.m. local time, poised for its biggest loss in two weeks. The yuan dropped 0.1 percent against the dollar, and the cost of insuring five-year sovereign debt from nonpayment rose 3 basis points.

            The Moody’s downgrade to A1 from Aa3 comes as local investors desert the equity and bond markets amid a government campaign to cut risk in the financial sector. The Shanghai gauge is the world’s worst-performing major benchmark index this quarter, sliding 6 percent. The yield on China’s 10-year government debt is at 3.68 percent, close to a two-year high.

            Chinese stocks are facing a "bigger challenge" than the Moody’s downgrade, said Hao Hong, Hong Kong-based chief strategist at Bocom International Holdings Co. "As the market wobbles, many of the stocks used for pledged loans are nearing the level that could trigger margin calls. This is probably a bigger risk near term. So together with this rating downgrade, it is negative for the market – but not just the downgrade itself."

            Moody’s cited the likelihood of a “material rise” in economy-wide debt and the burden that will place on the state’s finances. Total outstanding credit climbed to about 260 percent of GDP by the end of 2016, up from 160 percent in 2008, according to Bloomberg Intelligence.

            "The timing of the downgrade came as a surprise," said Sandra Chow, senior analyst at CreditSights in Singapore. "So the surprise element may cause a knee-jerk negative reaction, but the chase for yield may draw spreads back in eventually.” 

            Moody’s lowered China’s credit-rating outlook to negative from stable in March 2016, citing rising debt, falling currency reserves and an uncertainty over authorities ability to carry out reforms. About a month later S&P Global Ratings also warned that rising local debt was pressuring the nation’s rating.

            Consumer staple, health-care and utilities shares were among the biggest losers on mainland markets. The ChiNext gauge of small-cap companies erased a loss of 1.6 percent to trade 0.1 percent higher, while Hong Kong’s Hang Seng Index dropped 0.3 percent.

            Read more: https://www.bloomberg.com/news/articles/2017-05-24/china-stocks-slump-yuan-falls-after-moody-s-cuts-credit-rating