OppenheimerFunds Inc. (OPY) is disputing Puerto Rico Governor Alejandro García Padilla’s contention that the island cannot pay back its $72 billion debt. The New York-based mutual fund company said that based on data about income growth, sales-tax collection, and unemployment, the U.S. territory’s economy can withstand repaying creditors.
According to Bloomberg data, as of July 9, OppenheimerFunds, which is the largest holder of Puerto Rico municipal bonds, had about $4.4 billion of uninsured obligations from the island. Aside from insured debt, re-refunded securities, and tobacco bonds, these obligations make up 13.8% of Oppenheimer’s municipal fund holdings.
As Puerto Rico bonds continue to lose value-data shows that this year alone Puerto Rico bonds suffered a 9.5% loss-OppenheimerFunds’ municipal funds also have suffered. Bloomberg reports that for 2015,the company’s state funds in Arizona, Virginia, Maryland, New Jersey, and North Carolina, which all hold Puerto Rico securities, sustained the largest losses among single-state, open-end muni funds.
When García Padilla asked for wide-ranging restructuring of the territory’s debt last month, OppenheimerFunds said it would defend the terms of the bonds it holds. The firm does not believe the territory’s fiscal health will get better even if some of Puerto Rico’s agencies file for bankruptcy protection.
As of now the commonwealth cannot file for bankruptcy to erase its debts or that of its publicly- owned corporations. However, this week, Democrats in the U.S. Senate introduced a bill that would allow the territory’s public entities to file for Chapter 9 protection. Also this week, Puerto Rico asked creditors not to get embroiled in extensive litigation over the debt it owes. (There were creditors that went to court over a restructuring law that would have affected the territory’s public agencies. Oppenheimerfunds was one of them.
Meantime, Puerto Rico’s leading officials and advisors met with bondholders at Citibank (C) in New York. Jim Millstein, the head of Millstein & Co. warned that a “highly litigated process” could lead to “adverse consequences.” His company is offering restructuring advice to the island.
At the meeting, creditors sought to find out what kind of adjustment the Puerto Rican government is considering for their debt. Millstein said that all of this would be looked at on an “entity to entity” basis.
García Padilla’s call to restructure the island’s debt could spell trouble for municipal bond insurers that agreed to make scheduled principal and interest payments if the municipality were to default. Among those that could be forced to pay is Assured Guaranty, which, as of March 31 was backing about $10 billion in Puerto Rico principal plus interest payments. MBIA’s National Public Finance Guarantee Corp. also had backed about $10 billion.
Puerto Rico Bond Fund Cases
At Shepherd Smith Edwards and Kantas, our Puerto Rico bond fraud attorneys are working with investors who suffered losses involving Oppenheimer funds. We are also representing clients who purchased bond funds and municipal bonds from UBS (UBS), Banco Santander (SAN.MC), and Banco Popular.
Unfortunately, many retail investors, including retirees, have sustained large losses because of the failure of Puerto Rico’s bonds over the last few years. Some of these investors were inappropriately persuaded to invest in these bonds, which were not suitable for their investment portfolios and were too risky for what their finances could handle.
Contact our Puerto Rico muni bond fraud lawyers today. We work with clients in Puerto Rico and on the U.S. mainland in recovering their muni bond fraud losses.
OppenheimerFunds says Puerto Rico can pay its debts; governor says no, InvestmentNews, July 11, 2015
Puerto Rico Not Too Broke to Pay Debt, OppenheimerFunds Says, Bloomberg, July 9, 2015
U.S. senators introduce bankruptcy bill for Puerto Rico, Reuters, July 15, 2015
Puerto Rico urges creditors to co-operate, FT.com, July 14, 2015