Despite Bankruptcy and Massive Losses, Traders Are Still Selling Puerto Rico Bonds

According to Bloomberg, trading in Puerto Rico securities has gone up even after the U.S. territory filed for Title III bankruptcy protection last month. Over the last 50 days, $267.4 million of Commonwealth debt was the daily average that traded, which is more than the $195.9 million daily average from the last 200 days. Analyzing the increase, Matt Fabian of Municipal Market Analytics speculated to Bloomberg that investors who purchased the bonds might have assumed that the federally appointed financial control board tasked with fixing the island’s financial problems would succeed.

Puerto Rico owes more than $70 billion of bond debt and, additionally, has over $40 billion in unfunded pension liabilities. After talks with creditors went nowhere, Puerto Rico sought bankruptcy protection. Now, creditors will have to go to court to try to get back their losses.

However, those legal cases are being led by institutional investors, such as hedge funds and mutual funds. Nevertheless, retail investors and others continue to try to get back their investment losses starting from when Puerto Rico bonds and closed-end bond funds began plummeting almost four years ago. What seemed like a good investment—tax-exempt and allegedly low-risk—ended up proving catastrophic for many who were told, falsely, that investments were safe and appropriate for their portfolios. Hundreds were encouraged by brokers to borrow so they could invest even more money in these securities.

Puerto Rico Bond Fraud Cases
That is why our Puerto Rico bond fraud lawyers and closed-end bond fund attorneys have been working with clients on the U.S. mainland and the island to file claims against broker-dealers such as Santander Securities (SAN), Banco Popular, and UBS Puerto Rico (UBS-PR). We have been helping investors try to recoup their losses through FINRA arbitration. If you are one of these investors, please contact Shepherd Smith Edwards and Kantas, LTD LLP today.

S & P Lowers Puerto Rico COFINA bond Ratings
In particular, more holders of Puerto Rico bonds are realizing their investment may result in significant losses, even in those investments with supposed “guarantees.” This week, S & P Global Ratings lowered its credit rating for Puerto Rico COFINA bonds from CC to D after a federal judge ordered the trustee for the senior sales tax bonds to hold off from issuing a $16 million payment that was due on June 1. The island’s sales tax authority owes about $17 billion.

Judge Laura Taylor Swain, who is presiding over the U.S. territory’s bankruptcy case, froze the payment to give creditors time to settle competing claims over who should get the money. Senior COFINA creditors feel that Junior COFINA creditors should be paid after Senior holders. Meantime, holders of Puerto Rico general obligation bonds believe that they should get COFINAs assets because the territory had constitutionally guaranteed their securities. As a result, it is now unclear who will receive the Commonwealth’s tax income.

However, it’s not just bondholders and investors who directly purchased Puerto Rico securities that are having to grapple with the island’s financial woes. For example, according to NBC News, 40% of the Rochester Virginia Municipal Fund and the Rochester Maryland Municipal Bond Fund are invested in the territory’s bonds. There are also Franklin Templeton funds and Oppenheimer (OPY) funds that are heavily invested in the island.

Huge losses for these funds could impact state employees and public sector retirees who are among their investors. Also, said NBC News, there is the possibility that the U.S. investment companies that did invest heavily in Puerto Rico could fail if they aren’t repaid the money they are owed from the Puerto Rico debt.

To schedule your free case consultation, contact our Puerto Rico bond fraud law firm today.

Puerto Rico Bond Traders Still Find Buyers Despite Epic Collapse, Bloomberg, June 7, 2017

4 Reasons Why Puerto Rico’s ‘Bankruptcy’ Process Matters to U.S. Residents, NBC News, June 5, 2017

Puerto Rico COFINA senior sales tax bonds cut to D from CC on missed interest payment, Fidelity, June 7, 2017