How will Puerto Rico’s capital raise impact current holders?

Puerto Rico municipal debt was recently downgraded to junk status by all three major credit rating services.  Now there are reports, that hedge funds seeking to participate in Puerto Rico’s planned bond offering are asking that the commonwealth raise enough money to meet its needs for two years.

Hedge funds are also requesting that Puerto Rico give up its sovereign immunity, allowing bondholders to sue in New York court rather than face its judicial system.

While Puerto Rico may balk at such conditions, the requests illustrate the challenges faced by Puerto Rico in light of the current status of their outstanding debt.  Clearly the market views Puerto Rico debt as risky compared to other municipal debt.  This isn’t all that surprising.  According to reports, Puerto Rico’s jobless rate is more than double the national average and the economy has been lagging for some time.

Puerto Rico’s financial situation is already impacting current debt holders.  According to Morningstar, about 70% of U.S. mutual funds that focus on municipal bonds hold the securities, which are tax- exempt nationwide.  There are also certain closed-end funds that have over-concentrated positions in Puerto Rico debt.  These funds, like UBS’s Puerto Rico Family of Funds, have suffered devastating losses over the last 6 months.

The general-obligation sale would be the first borrowing from the commonwealth since the Puerto Rico Electric Power Authority sold debt in August, Bloomberg data show.  Current debt holders will be watching with anxious breath.

The White Law Group continues to investigate the liability that brokerage firms may have for unsuitably investing their clients in Puerto Rico debt.  Brokerage firms have an obligation to perform adequate due diligence on any investment they recommend and to ensure that every recommendation they make is suitable in light of the client’s age, investment experience, net worth, and investment objectives.  Given the turmoil currently being experienced in Puerto Rico and the extreme losses suffered in certain funds that invested heavily in Puerto Rico debut, it is apparent that certain brokerage firms unsuitably invested their clients in these funds.

Specifically, The White Law Group is looking at potential claims involving the following funds:

Oppenheimer Rochester Virginia Municipal Bond Fund

UBS Puerto Rico Fixed Income Fund I, Inc.

UBS Puerto Rico Fixed Income Fund II, Inc.

UBS Puerto Rico Fixed Income Fund III, Inc.

UBS Puerto Rico Fixed Income Fund IV, Inc.

UBS Puerto Rico Fixed Income Fund V, Inc.

UBS Puerto Rico Fixed Income Fund VI, Inc.

UBS Puerto Rico Investors Tax-Free Fund, Inc.

UBS Puerto Rico Investors Tax-Free Fund II, Inc.

UBS Puerto Rico Investors Tax-Free Fund III, Inc.

UBS Puerto Rico Investors Tax-Free Fund IV, Inc.

UBS Puerto Rico Investors Tax-Free Fund V, Inc.

UBS Puerto Rico Investors Tax-Free Fund VI, Inc.

UBS Puerto Rico AAA Portfolio Bond Fund, Inc.

UBS Puerto Rico AAA Portfolio Bond Fund II, Inc.

UBS Puerto Rico AAA Portfolio Target Maturity Fund, Inc.

UBS Puerto Rico Tax-Free Target Maturity Fund I, Inc.

UBS Puerto Rico Tax-Free Target Maturity Fund II, Inc.

UBS Tax Free Puerto Rico Fund, Inc.

UBS Tax Free Puerto Rico Fund II, Inc.

UBS Tax Free Puerto Rico Target Maturity Fund, Inc.

UBS Puerto Rico Mortgage-Backed & Government Securities Fund, Inc.

UBS Puerto Rico GNMA & US Government, Inc.

If you suffered losses in any of these funds and would like to explore your litigation options, please call The White Law Group at 312-328-9650 for a free consultation.

The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida.  For more information on the firm, visit https://whitesecuritieslaw.com.