Hope that the US Treasury will save ailing Puerto Rico bonds does not appear to be warranted. According to a spokesperson for the department, who did not wish to be named, the Treasury will not be providing help to the US territory over the municipal bond fund debacle.
However, reports Fox News, the federal government is expected to provide incentives to enhance Puerto Rico’s failing economy. Right now, Puerto Rico’s debt, which is mostly in mutual funds, is at about $70 billion. That’s close to 2% of the $3.7 trillion municipal bond market. This is significantly higher than Detroit’s $18 billion debt that forced that city to file for municipal bankruptcy earlier this year.
Yet even as Puerto Rico’s debt continues to grow, it won’t be allowed to file for Chapter 9 bankruptcy because like US states, territories cannot seek such protection. That said, officials in Puerto Rico maintain that it isn’t bankrupt yet.
This year, Puerto Rican bonds have dropped 18%-Standard & Poor’s says this will be the bonds’ worst year since 2000. Because Puerto Rico is a US territory, it can sell bonds that lead to tax-exempt interest paid in all the US states, and these bonds come with higher interest than a lot of others due to its typically low credit rating. Also, some bonds are insured for default, while others come with legal structures that give the appearance that they are bulletproof-although such assurances may be illusory.
Due to all these advantages, investors have been getting involved in Puerto Rico bonds for years, even as the territory’s debt has gone up. The commonwealth selling hundreds of millions of dollars of new bonds to pay up older bonds, as well as $2.5 billion of bonds to raise money for its beleaguered pension system and to pay for its annual budget deficits. Now it appears that this gluttony of debt may finally push the bonds down to junk status.
Puerto Rico Bond Fund Claims
At Shepherd Smith Edwards and Kantas, LTD, LLP, our securities fraud lawyers are investigating claims for investors that bought Puerto Rio municipal bonds and bond funds. The securities were sold by UBS (UBS), Banco Popular, and Banco Santander (SAN.MC), and there are growing concerns that the investments were not appropriate for some of these investors.
Many investors are now claiming that the Puerto Rico bond funds were sold to them as stable, safe, and would generate income for them. Yet, the bonds and bond funds have resulted in huge financial losses. Some customers have lost all of their retirement.
Over the years, our securities lawyers have helped thousands of investors recoup their investment fraud losses. Contact our Puerto Rico bond fund law firm today.
Puerto Rico, At Brink Of Bankruptcy, May Get U.S. Economic Boost, Fox News/Reuters, October 9, 2013
Worsening Debt Crisis Threatens Puerto Rico, New York Times, October 7, 2013
U.S. Treasury Said to Have No Puerto Rico Assistance Plan, Bloomberg Business, October 8, 2013
More Blog Posts:
Puerto Rico Municipal Bonds, October 9, 2013
Muni Bond Funds Hit by Puerto Rico’s Debt Problems, Institutional Investor Securities Blog, October 9, 2013
Muni Bonds Draw Investors But Come With Serious Risks, June 11, 2013