In the wake of Puerto Rico’s plans to sell $2 billion of general-obligation debt to try to balance its beleaguered budget, the hedge funds planning to get involved in this latest bond offering are asking the US territory to raise enough funds to last two years. Reportedly, the hedge funds also want the Commonwealth to surrender its sovereign immunity, which would let bondholders sue in New York court instead of dealing with the Puerto Rican judicial system.
The reported hedge funds’ requests point to the awareness that risks involving Puerto Rico have gone up. Just this month, Moody’s Investors Service, Fitch Ratings, and Standard and Poor’s all downgraded the U.S. territory to junk status. Aside from the planned Puerto Rico bond offering, which is being underwritten by Morgan Stanley (MS), Barclays Plc (BCS), and RBC Capital Markets (RBC), legislation is in the works to give the Commonwealth up to $3.5 billion of borrowing capacity.
As of the end of June, the US territory and its agencies had outstanding debt of roughly $70 billion. The downgrades by the credit rating agencies led to $940 million of accelerated payments on swap fees and debt, with close to half due in 30 days.
As Investment News reports, Puerto Rico’s finances have impact outside of the island. Morningstar Inc. says that approximately 70% of U.S. mutual funds concentrating on municipal bonds are holding these securities, which are tax-exempt in America.
Meantime, in the US mutual fund sector, those heavily exposed to Puerto Rico bonds have been selling some of the island’s debt to satisfy investor demands for redemption. Among the sellers is OppenheimerFunds (OFI). CNBC also reports that analysts are saying hedge funds with heavy risk, such as Meehan Combs LP and Maglan Capital, have been more willing to buy from these mutual funds, and even debt funds that are in distress have expressed interest in Puerto Rico bonds. That said, funds without much exposure, are not likely to sell their Puerto Rico debt at cheap prices. (Also, Morningstar data shows that the leading 10 US mutual funds with the largest amount of exposure to Puerto Rico have been struck by close to $3 billion in outflows over the last year.)
Our Puerto Rico bond fraud lawyers represent investors that purchased these securities through major firms both in the U.S. and Puerto Rico. We are currently representing many clients against firms such as Banco Santander (SAN), UBS (UBS), Banco Popular, Merrill Lynch (MER), and other brokerage firms. Many of the people our attorneys have spoken to have lost a significant portion of their life savings in Puerto Rican debt, with some seeing their funds depleted completely. Contact Shepherd Smith Edwards and Kantas, LTD LLP today to discuss your losses and how we may be able to help.
Hedge funds request Puerto Rico borrow to last two years, InvestmentNews, February 16, 2014
Redemptions force US mutual funds to unload Puerto Rico debt, CNBC, February 8, 2014
More Blog Posts:
Ex-UBS Global Wealth Chief Exposed by Whistleblower Pleads Not Guilty To Tax Fraud Conspiracy, Stockbroker Fraud Blog, January 28, 2014
Billions of Dollars Have Already Been Lost by Investors in Puerto Rico Closed-End Funds that were Sold by UBS, Stockbroker Fraud Blog, January 10, 2014
Detroit, MI Can’t Pay $165M to UBS & Bank of America For Swaps Deal, Rules Judge, Institutional Investor Securities Blog, January 21, 2014