OppenheimerFunds Increases Its Exposure to Puerto Rico Debt Despite Downgrade by Moody’s, S & P, and Fitch to Junk Status

Even though Puerto Rico’s debt has been downgraded to “junk” status by the three major ratings agencies (Standard & Poor’s, Moody’s, and Fitch Ratings), OppenheimerFunds (OPY) has increased its holding of Puerto Rican debt in two of its municipal bond funds that carry lower risk. The credit raters downgraded the US Commonwealth over worries about its failing economy and decreased ability to finance its deficits in capital markets.

According to Reuters, Lipper Inc. says that at the end of last year, the Oppenheimer Rochester Short-Term Municipal Fund’s (ORSCX) exposure to Puerto Rico’s debt had risen 13% from a year ago, while its Intermediate-Term Municipal Fund more than doubled its exposure to 17%. (Details of the holdings in both funds since then are still unavailable.) Both have a 5% limit on how much junk-rated debt they can contain. However, because the US territory’s debt was downgraded after the buys were made, Oppenheimer, which is part of MassMutual Financial Group, may not obligated to unload the assets.

The company has continued to support Puerto Rico municipal bonds, even as a lot of other mutual fund firms have lowered their exposure to Puerto Rico debt. This week, Oppenheimer downplayed the investment risk involved, noting that most bonds involved are insured (Reuters reports that 27% of the holdings in the intermediate-fund and another 4% in the short-term fund, do not have insurance).

In addition to the Rochester short and intermediate bond funds, Oppenheimer has several state specific bond funds that also have significant exposure to Puerto Rican debt. Bloomberg says that the Oppenheimer funds that are focused on Pennsylvania, Massachusetts, Virginia, North Carolina, and Maryland have the largest weightings toward the US commonwealth out of all its state-specific funds -more than 25% each. Its Limited-Term New York Municipal Fund has 25% of its bonds coming from Puerto Rico as well.

Some of Oppenheimer’s funds have started to see outflows of investors because of the exposure to Puerto Rican debt. Last month, for example, investors withdrew roughly $317 million from Rochester muni bond funds. Similarly, a lot of other industry players are taking the same stance, with BlackRock Inc. (BLK), Vanguard, and others eliminating or lowering their exposure to Puerto Rico debt. On Wednesday, Fitch said that in a look at six large asset managers and their 92 municipal closed-end funds, on average Puerto Rico debt had been reduced by over 65% during the last half of last year. Two managers left their holdings completely.

Our Puerto Rico bond fraud lawyers represent investors with muni bond fraud claims against many major Wall Street firms as well as a number of Puerto Rico based firms including: UBS (UBS), Banco Santander (SAN), and Banco Popular. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.



Oppenheimer Rochester on Puerto Rico Downgrades: An Update, OppenheimerFunds, February 12, 2014
OppenheimerFunds increased Puerto Rico risk in two safer funds, Reuters, February 12, 2014

More Blog Posts:
Standard and Poor’s Reduces Puerto Rico Obligation Debt to Junk Status, Stockbroker Fraud Blog, February 6, 2014

How Can you Recover Your Loss on UBS Puerto Rico Municipal Bonds?, Stockbroker Fraud Blog, February 7, 2014

Ex-Oppenheimer Fund Manager to Pay $100K To Settle Private Equity Fund Fraud Charges, Institutional Investor Securities Blog, January 25, 2014