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Now Moody’s Says Puerto Rico Debt is “Chatarra” – “Junk”

We told you months ago that Puerto Rico debt was going to be downgraded by one or more of the three national credit rating services, Moody’s, Fitch or Standard and Poor’s before June 2014. On Wednesday Standard & Poor’s downgraded multiple issues of Puerto Rico debt to what the Puerto Ricans describe as “Chatarra”; that is, “Junk.” This afternoon Moody’s Investors Service joined in and downgraded the Puerto Rico General Obligation bonds to Ba2 from Baa3 and all of the other agency linked debt two more notches except the Puerto Rico Aqueduct and sewer Authority bonds which only went down one more notch to Ba1. In addition, Moody’s downgraded the prized Puerto Rico Sales Tax Financing Corporation Bonds (COFINA Bonds) another notch which still leaves them with an investment grade rating. Moody’s outlook for all of these bonds remains negative.

Moody’s rationale for the continuing downgrade of Puerto Rican debt is the problems that have confronted the US territory for many many years including the continued financing of the deficits to the issuance of new bonds, the underfunding of all the public service workers pensions since inception, the continuing imbalance of the budget’s and over 7 years of economic recession taking its toll on the Island. Moody’s attributes the economic weakness due to the long-term decline in its once dominant manufacturing sector, expiration of federal tax benefits to many of its industries and high energy costs. The ratings agency is still worried about the unfunded pension liabilities relative revenues even after the government acted to reform its pension system. Moody’s is very concerned about the high level of government debt which it cites to be more than 50% of gross domestic product. According to Moody’s, its debt load and fixed costs and insufficient liquidity make it difficult for Puerto Rico to access the markets for additional financing in the future

We believe the Moody’s Standard & Poor’s downgrades of Puerto Rican debt will only accelerate the Commonwealth’s financial problems. The downgrades will increase the cost of debt service if they can ever access to public markets.

The most common question from our readers of this blog is what financial impact will these downgrades have on the Puerto Rican investors. One thing is certain the value of the bonds will go down in their portfolios. The last net asset values published by UBS Financial Services of Puerto Rico for the closed end bond funds that it sponsors were published January 31, 2014, as follows:

We expect a further decline across the board of at least 10% in all of the Puerto Rico bonds issued and outstanding and underlying the UBS closed-end bond funds.

Have you suffered losses in Puerto Rico bonds or closed-end bond fund investments? 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 español. 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.