In our latest post on the Puerto Rico bond saga, we discussed President Obama’s signing of a new law that created a financial oversight board (FOB) responsible for approving the restructuring of the U.S. territory’s $70 billion debt. In that article, entitled Puerto Rico’s New Law is a Rearrangement of the Deck Chairs on the Titanic, we noted that the appointment of the FOB was likely too little too late, and we quoted a senior research analyst with U.S. Trust who said that the proposed restructuring would essentially, “swap old bonds for new bonds that aren’t much better than the old bonds.”
Now, it seems, not only were we right about the ineffectiveness of Congress’s and the President’s approach, but Puerto Rico’s bond crisis is actually continuing to get worse.
Pensions Increase Puerto Rico’s Debt from $70 Billion to $113 Billion
As Bloomberg reported in August, in addition to Puerto Rico’s bond debt, Puerto Rico also owns a significant pension liability. When added to Puerto Rico’s existing $70 billion debt, the territory’s pension liability brings its total outstanding obligations to roughly $113 billion. At a point that is fast approaching, Puerto Rico will have to make a decision: Will it pay its bond obligations? Or, will it pay its pension obligations?
It appears that, pending judicial or legislative intervention, Puerto Rico may have already made up its mind. Puerto Rico increased its financial allocation to the pension system in 2016, and its 2017 pension allocation will represent an increase of 74 percent over the allocation in 2014. At the same time, Puerto Rico is defaulting on its bond obligations. After missing a nearly $1 billion payment in July, it missed another $9.9 million in bond interest payments on September 1. Of course, the matter isn’t over, and bond holders still have the ability to take action to protect their investments and their Constitutional rights.
Puerto Rico’s Pension Debt Continues to Grow
At the same time, Puerto Rico pensioners are not resting easy, either. Even the increased allocations are not enough to cover pension payments as they come due, with Bloomberg reporting that active employees’ pension contributions are being used to pay current retirees. Coupled with the fact that the island currently has more retirees than government employees, this means that Puerto Rico’s pension obligations are continuing to swell. Of course, this also means that Puerto Rico isn’t getting any closer to paying off its bonds.
Bond Holders Take Action Against Their Brokerage Firms
While bond holders may not be able to collect from Puerto Rico (and almost certainly not in the short term), they may have other avenues to seek compensation for their investment losses. Just over a year ago, Zamansky LLC’s financial fraud attorneys secured a record $3.1 million arbitration award against UBS-Puerto Rico in a case in which we alleged that the brokerage firm had engaged in a number of inappropriate practices that led our clients to suffer losses from the collapse of Puerto Rico’s risky municipal bonds.
We are continuing to represent Puerto Rico bond and bond fund investors, and if you invested in Puerto Rico bonds or funds we encourage you to contact us for a free, confidential consultation. If you received bad investment advice or your broker made over-concentrated or unsuitable investments on your behalf, we may be able to help you recover financial compensation.
Have You Suffered Puerto Rico Bond Losses? Contact Zamansky LLC Today
For more information about seeking compensation for your Puerto Rico bond or fund losses, schedule a free consultation at Zamansky LLC. To speak with an experienced financial fraud lawyer, submit our online consultation form or call (212) 742-1414 today.