Moody’s Reassessment of Puerto Rico Bonds Does Nothing to Relieve Investor Worries

One day after Moody’s Investor Service placed Puerto Rico’s general obligation bonds rating of Baa3 on review for downgrade to junk status, the credit rating agency affirmed the ratings it had earlier in the year given four banks: Banco Santander Puerto Rico, Popular Inc. and its subsidiaries, FirstBank Puerto Rico, and Doral Financial Corporation, as well as the ratings for senior bonds put out by Doral Financial and Banco Santander Puerto Rico through the Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority. The ratings outlook for First Bank, Popular, and Doral Financial stayed negative, as did Banco Santander Puerto Rico’s BFSR/BCA. (However, the outlook on that bank’s supported deposit and debt ratings are stable due to the bank’s affiliation with Santander Bank NA, which is a US affiliate.)

Puerto Rico, which is a major municipal bond issuer, has been close to or in recession for nearly a decade and has over $70 billion in debt. Moody’s said it is worried about the territory’s growing dependence on outside short-term debt, “weakening liquidity,” limited market access, and its poor economy. The credit rater believes that the fiscal and economic challenges that the territory continues to face will keep threatening the “health of the banking system.” Noting that the banks’ non-performing assets continue to remain negative relative to banks in the US mainland, the agency said that this could result in more losses if things don’t get better.

Unfortunately, many investors who got involved in Puerto Rico muni bonds were not apprised of the risks or could have never handled the high risks to begin with. Some investors have lost their retirement or life savings as a result.

In the last several months, many Puerto Rican investors who had accounts with UBS Financial Services Inc. (UBS), Banco Santander (SAN.MC), and Banco Popular have come forward complaining of significant losses in their accounts due to the fall in Puerto Rican municipal bonds or products tied to those investments. Our securities fraud lawyers have agreed to take on a number of these municipal bond cases and we are continuing to meet with investors in the US and in Puerto Rico.

Among those being blamed for the losses is UBS broker David Lugo. One of our clients has already filed a FINRA arbitration case against UBS seeking to recover $15 million as a result of Mr. Lugo and UBS’s management of his accounts. According to that complaint, Mr. Lugo and UBS recommended the client invest almost all of his savings in low-rated Puerto Rican bonds or UBS’s proprietary closed-end Puerto Rican Bond Funds.

In accordance with the claim filed with FINRA, once all of the clients’ own funds were invested in these securities, UBS encouraged to the client to take out tens-of-millions in loans, much of which was used to buy more UBS bond funds. When the market for Puerto Rican bonds began to dry up, the large debts began to be called in, wiping out the clients’ entire account in a matter of weeks. In addition to the one client, Mr. Lugo’s brokerage industry records indicate several others have filed similar complaints against him in the last few weeks. Our firm is also representing more than a dozen other investors who worked with David Lugo and UBS and we will also be filing FINRA arbitration claims for the recovery of their savings in the coming weeks.



Please contact our Puerto Rico municipal bond lawyers to request your free case assessment.

Moody’s affirms ratings of Puerto Rican banks, Moody’s, December 12, 2013

Moody’s puts Puerto Rico on review for downgrade, Reuters, December 11, 2013

More Blog Posts:
Puerto Rico Reportedly Among Those that Engaged in “Scoop & Toss” Tactic with Municipal Bonds, Stockbroker Fraud Blog, December 7, 2013

Why did UBS Financial Advisors Recommend Puerto Rico Muni Bonds to Elderly and Retired Investors?, Stockbroker Fraud Blog, November 6, 2013
Liquidators of Bear Stearns Hedge Funds Sue S & P, Moody’s and Fitch for $1.12B, Institutional Investor Securities Blog, August 6, 2013