This week, Standard & Poor’s (“S&P”) cut the credit rating for Puerto Rico’s general obligation debt to junk-bond status due to concerns about an inability to access capital markets. S&P had put the US territory’s rating on notice for such a downgrade late last year. Now, the credit rating agency announced, it is officially issuing that downgrade to a “BB”-a level under investment grade.
The credit rating agency believes that the Caribbean island’s ability to sell additional debt in $3.7 trillion municipal bond market is limited and cash shortages could happen. Because of such “liquidity constraints,” S & P does not feel that an investment-grade rating is warranted. The agency also cut its rating on Puerto Rico’s Government Development Bank to a BB, as well.
Puerto Rico has been in peril of getting a ratings downgrade by all three US credit raters for some time now in part because of its $70 billion of tax-free debt. Responding to the junk status downgrade, Puerto Rico’s Treasury Secretary and Government Development Bank said that S & P’s decision was a disappointment but they remained “confident” that the US territory had enough liquidity to meet such needs through the fiscal year’s conclusion.
It was last week that UBS (UBS) put out a report stating that at least one of the three credit raters was expected to reduce its rating of Puerto Rico’s debt to “junk” within the next 30 days. Unfortunately, the announcement comes far too late for the brokerage firm’s retail customers on the Caribbean Island that have way too many Puerto Rico bonds in their portfolios. Also, the financial firm’s closed-end funds are comprised in large part of these bonds.
Many of UBS Puerto Rico’s customers have seen 50-60% losses, or more, in their retirement accounts. Now, with S & P’s announcement of an official downgrade, the effects on Puerto Rico debt holders will be, according to Forbes, “grave.”
Meantime, reports The Wall Street Journal, Puerto Rico has been preparing a debt offering of about $2 billion. The sale would be the first made by a Puerto Rico entity in six months. The US territory reportedly wants to show investors it can still borrow funds in the public market and had been hoping to avoid the downgrade to junk status. Morgan Stanley (MS) had suggested the island raise about $1 billion in a bond that had a 10% interest rate to sell to investors, including hedge funds.
At Shepherd Smith Edwards and Kantas, our Puerto Rico bond fraud lawyers are representing customers who suffered losses from their investments they made through UBS, Banco Santander (SAN), Banco Popular, Merrill Lynch (MER) and other financial firms. Please contact our Puerto Rico bond fraud lawyers today. We work with clients both in the US and in Puerto Rico and have a Puerto Rico licensed attorney on staff.
UBS Drops First Shoe On Puerto Rico Bond Investors, Forbes, February 4, 2014
Puerto Rico Seeking $2 Billion Debt Offering, The Wall Street Journal, February 2, 2014
A Debt Downgrade for Puerto Rico, NY Times, February 5, 2014
More Blog Posts:
Seniors and Retirees Suffer Massive Losses in Puerto Rico, Stockbroker Fraud Blog, Stockbroker Fraud Blog, January 31, 2014
A History of UBS Bad Bets, Stockbroker Fraud Blog, January 29, 2014
Hedge Funds Are Moving in on Municipal Debt, Including Puerto Rico Debt, Institutional Investor Securities Blog, November 15, 2013