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Puerto Rico Debt is “Chatarra” – “Junk”

You read it on this blog months ago, 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. Well two days ago Standard & Poor’s won the race to the finish line. It downgraded multiple issues of Puerto Rico debt to what the Puerto Ricans describe as “Chatarra”; that is, “Junk.” For example, Standard & Poor’s lowered the ratings from investment grade rating “BBB” to speculative junk bond rating “BB” on the following bonds:

The explanation given by Standard & Poor’s for the downgrades was the liquidity problem in Puerto Rico and a reduced capacity to obtain liquidity from the Government Development Bank of Puerto Rico which was also downgraded. The ratings agency does not believe that Puerto Rico will be able to finance its deficits directly in the market or indirectly through the Government Development Bank. Thus, the liquidity risk and the market access risk were the driving forces behind the downgrade.

The Standard & Poor’s downgrades of Puerto Rican debt have only accelerated the Commonwealth’s financial problems. The downgrades will increase the cost of debt service. They triggered debt acceleration clauses and the posting of additional collateral for swap contracts. In one day, Standard & Poor’s cost the Puerto Rico government close to $1 billion.

The question for most readers of this blog is what did this cost the Puerto Rican investors. 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 29, 2014, as follows:

In the next day or two, we will have a better sense of how these downgrades will impact the thinly traded Puerto Rico bond market. 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.