As fears over rising interest rates and months of mass selling weren’t enough of a head wind for municipal bond investors, Puerto Rico now appears to be running out of time to get its fiscal house in order. According to an Investment News report, Puerto Rico was put on review by another major ratings agency, paving the way to what could be a shock to the municipal bond market.
Moody’s Investor Services Inc. has apparently become the second of the three major ratings agencies to put Puerto Rico general obligation municipal bonds and related securities officially on watch for a downgrade to below-investment grade. The review follows a similar action by Fitch Ratings Inc. in mid-November.
The S&P Municipal Bond Puerto Rico Index has fallen 18.49% year-to-date through Dec. 11, almost nine times the loss of the S&P Municipal Bond Index, which measures the performance of the entire universe of investment-grade municipal bonds.
The falling prices, and consequently higher yields, are making it harder for Puerto Rico to borrow money to fund its debt.
With approximately $70 billion in outstanding debt, a Puerto Rico restructuring, actual default or bailout by the federal government would be by far the largest of its kind. Detroit, for example, has $18 billion of municipal bond debt outstanding.
According to Morningstar, more than three-quarters of municipal bond funds have at least some exposure to Puerto Rico bonds. Some of the funds with the most exposure include: Oppenheimer Rochester Funds, UBS Puerto Rico AAA Portfolio Bond Fund, UBS Puerto Rico AAA Portfolio Bond Fund II, UBS Puerto Rico AAA Portfolio Target Maturity Fund, UBS Puerto Rico GNMA & US Government Target Maturity Fund, UBS Puerto Rico Fixed Income Fund, UBS Puerto Rico Fixed Income Fund II, UBS Puerto Rico Fixed Income Fund III, UBS Puerto Rico Fixed Income Fund IV, and the UBS Tax-Free Puerto Rico Fund.
The White Law Group continues to investigate the liability that brokerage firms may have for recommending municipal bond funds with a high exposure to Puerto Rican debt.
Broker-dealers are required by securities law and industry regulations to adequately disclose the risks associated with all investment recommendations, and to perform the necessary due diligence to determine if the investment is suitable for each individual client based on risk tolerance, investment experience, liquidity needs, net worth and financial objectives. When broker-dealers violate securities laws and regulations they can be liable for investment losses.
If you are concerned about your investment in a municipal bond fund over-exposed to Puerto Rican debt and would like to speak to a securities attorney about whether you have a potential FINRA dispute resolution claim, please call The White Law Group’s Florida office at 561-807-6804 for a free consultation.
Dedicated to the representation of investors in FINRA arbitration claims, The White Law Group, LLC is a national securities fraud law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, please visit our website at https://www.whitesecuritieslaw.com.