Tropical Storm: Puerto Rican Municipal Bonds

If you’ve been reading the news lately, you probably noticed the series of alarming stories on a certain major government in danger of default. This government has enormous pension obligations and has recently been suffering from very high jobless rates along with a shrinking economy. As a result, this government’s bonds have taken a serious hit--so serious, in fact, that it’s left the massive mutual funds that hold the bonds scrambling to dump them or to get loans to prevent them from having to sell. If you haven’t guessed what government we’re talking about yet, here’s another hint: their flag has a star and stripes. Another hint: It’s not The United States.

Ok, ok: it’s Puerto Rico. Pretty close!

Puerto Rican Municipal Bond Crisis

 Creative Commons, Wikipedia

Creative Commons, Wikipedia

Recently, disturbing news that Puerto Rico’s government might lurch into default has sent the value of the S&P Municipal Bond Puerto Rico Index plummeting around 20%, or 19 points worse than the general S&P Muni Bond Index. In other words, these bonds have gone toxic.

Back in August and September, a number of major securities brokerage firms ordered thousands of brokers to stop selling Puerto Rican Muni Bonds to clients. After that came news that over the past ten years, financial services giant UBS had packaged and sold more than $10 billion of the bonds to individual investors, many of whom were allegedly urged by UBS to buy on the margin or on credit lines, increasing exposure. Now we learn that at least one major mutual fund, OppenheimerFunds, is so heavily-invested in the island-territory’s failing bonds that it’s taken a $2 billion line of credit from Citigroup to shore up its portfolio and, hopefully, weather the tropical financial storm. Meanwhile, scores of individual investors who find themselves holding Puerto Rican Municipal Bonds, whether directly or through mutual funds like Oppenheimer, must be wondering what all this means for them...

Weather the Storm or Run for Cover?

 Creative Commons, Wikipedia

Creative Commons, Wikipedia

As much as we’d like to speculate on that, alas, we’re not qualified. But we continue to hope for the best. What we are qualified to do is to raise awareness among investors whose portfolios may contain the toxic Puerto Rican Muni Bonds. The recent drastic losses in value and general volatility of the Puerto Rican Munis effectively makes this product completely unsuitable for the conservative investors with moderate risk tolerances who traditionally hold them. If you’re one of these investors, it may be time to take action before it’s too late. If you’ve already lost your hard-earned money as a result of the island bonds, we suggest you contact an attorney now.

If you or anyone you know has suffered losses resulting from Puerto Rican Municipal Bonds or any other form of broker misconduct or investment fraud, please contact us toll-free immediately at 1-855-462-3330 for a free consultation.