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Puerto Rico Borrowing From Self Is Not A Good Sign For UBS Puerto Rico Investors

The latest news from Puerto Rico is that Government Development Bank (GDB) has borrowed $110 million from the State Insurance Fund (SIF) for its liquidity needs. The GDB President attempted to put a positive spin on the loan as achieving two objectives, “increasing GDB’s liquidity and improving the cash flow of SIF,” but borrowing from Peter to pay Paul is never a good strategy, even for a legitimate government. Puerto Rico is ostensibly seeking short-term deals to raise cash as it waits for conditions to improve in the US municipal bond market but the problem is with the Puerto Rico bond market and its economy. Noteworthy is the fact that the GDP still had to pay 8% annually for the loan and then pay it all back in less than 6 years. If 8% is the going rate within the government intra-agency borrowing what are the lenders on the outside going to charge the territory?

Undoubtedly, this action is not going to be received favorably by the three rating agencies: Fitch, Moody’s and Standard & Poor’s. The negative view of these rating agencies has already impacted Puerto Rico bond prices and consequently the value of the UBS Puerto Rico closed-end bond funds held by many Puerto Rico investors. We believe the net asset values (NAVs) of the various funds will continue the downward trend when the reports are released next week. Many of the funds are near or below their all-time lows reached in the fall of this year. The most recent NAV’s published on December 26, 2013, put the value of the funds as follows:

Notwithstanding, Puerto Rico financial advisors have continued to recommend the funds as good investments. More and more investors have called our offices seeking our opinion about their brokers recommendations to buy now! Nothing could be further from the truth as evident by the actions of government officials. The financial advisors at UBS Puerto Rico, Santander Securities, Popular Securities, Merrill Lynch and Oriental simply have no reasonable basis for their recommendations.

Have you suffered losses in a Puerto Rico closed-end bond fund investment? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. We have associated with an attorney in San Juan, Puerto Rico, namely Lcdo. Julio Cayere-Quidgley, who will meet with you and discuss your case at no charge. Mr. Pearce and Mr. Cayere are accepting clients with valid claims against UBS Puerto Rico, Santander Securities, Popular Securities, Merrill Lynch and Oriental for misrepresentations, overconcentration and/or unsuitable recommendations of its bond funds.

The most important of investors’ rights is the right to be informed! This Investors’ Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over , Attorney Robert Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. Attorney Adam Kara-Lopez habla espaƱol. The lawyers at our law firm are devoted to protecting investors’ rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.