The financial fallout caused by Hurricanes Irma and Maria is being felt not just on the island of Puerto Rico, but in the U.S. mainland as well. Puerto Rico bonds, which were already in trouble prior to the storms because of the island’s faltering economy and bankruptcy, are expected to take even more of a hit. Moody’s Investors Service assesses the future of the bonds, which were already at a Caa3 rating, as negative. The ratings agency said that the “disruption of commerce” caused by hurricanes will drain Puerto Rico’s “already weak economy” further. All of this is expected to impact not just the Puerto Rico bonds but also the mutual funds based on the U.S. mainland that hold them, which means that investors will be impacted.
According to InvestmentNews, Morningstar stated that 15 municipal bond funds, “14 of them from Oppenheimer Funds (OPY),” have at least 10 % of their portfolios in the island’s bonds. The 15th fund is from Mainstay. Morningstar reported that through September 28, the funds lost a 1.57% average for the month. The Oppenheimer Rochester Maryland Municipal Bond (ORMDX), which has 26% of its portfolio in Puerto Rico bonds, was considered the worst performer. In addition to Oppenheimer and Mainstay, other U.S.-based funds that are losing money from Puerto Rico bonds, include, as reported by The New York Times:
· Paulson & Co., which has invested billions of dollars in Puerto Rico securities. The Wall Street firm is run by hedge fund manager John A. Paulson.
· CPG Real Estate, whose COO has been an investor in Puerto Rico for almost two decades.
· DE Shaw
· Blackstone Group (BX)
· Lone Star Funds
· Goldman Sachs (GS)
And then, of course, there are the thousands of retail investors who lost everything from investing in Puerto Rico bonds and closed-end bond funds that they were told were safe, low-risk investments. Many of these investors should never have invested in Puerto Rico securities, let alone borrowed to invest in even more of the island’s bonds. Yet that’s what many of them did on the recommendation of brokers from brokerage firms such as Morgan Stanley (MS), UBS Puerto Rico (UBS-PR), Oriental Securities, Banco Popular, Santander Securities (SAN), and other broker dealers.
Insurer Withdraws Lawsuit Against Puerto Rico
Last week, Assured Guaranty, a Puerto Rico bond insurer, announced that it was withdrawing its lawsuit challenging the legality of the U.S. territory’s fiscal restructuring plan in the wake of Hurricane Maria. Assured Guaranty and insurer MBIA Inc. sued the island’s government and its financial oversight board in May. The two insurance companies have approximately $9 Billion entangled in Puerto Rico’s debt crisis, with Assured potentially liable for up to $5.4 Billion in bondholder losses on debt that defaulted.
Contact Shepherd Smith Edwards and Kantas and ask to speak with one of our experienced Puerto Rico bond fraud lawyers today.
Hurricanes that ravaged Puerto Rico also wreck its bonds, InvestmentNews, September 29, 2017
Assured Guaranty withdraws PREPA lawsuit in Hurricane Maria aftermath, Reuters, October 13, 2017
More Blog Posts:
Puerto Rico Bond Fraud Cases Name Former Morgan Stanley Broker Angel Aquino-Velez, Stockbroker Fraud Blog, October 2, 2017
After Hurricane Maria and Loss of Power in Puerto Rico, PREPA Bondholders Could Lose Investments For Good, Stockbroker Fraud Blog, September 16, 2017
FINRA Charges Sandlapper Securities Over Fraudulent Private Placement Markups of Up to 270% Involving Texas Saltwater Disposal Wells, Institutional Investor Securities Blog, October 2, 2017