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Recap: What Bond Investors Need to Know about Puerto Rico’s Debt Crisis

June 30, 2017 Blog

Now that Puerto Rico has filed for bankruptcy protection, many investors living in the island territory and on the U.S. mainland are anxiously awaiting a final resolution. How did we get here, and what can investors in Puerto Rico’s municipal bonds reasonably expect? Here is a recap of our coverage of the Puerto Rico debt crisis:

Storm of Puerto Rican Bonds Hits U.S Mainland

We first reported on the potential impact of a Puerto Rican debt crisis on U.S. investors in October 2013. At the time, brokerage firms were telling their brokers to stop recommending investments in Puerto Rico’s municipal bonds, and we warned that it would, “likely take investors . . . years to dig out from the wreckage.”

Zamansky LLC Investigates UBS Puerto Rico Bond Funds and Financial Advisors

Also in October 2013, our firm began investigating UBS Financial Services, Inc. of Puerto Rico with regard to its alleged sales of leveraged bond funds including Puerto Rico’s tax-free municipal bonds. We warned of the volatile and risky nature of these funds, and we encouraged bond holders who were experiencing losses to consider legal action to protect their investments. Shortly after, we filed our first arbitration claim against UBS Financial Services Inc.

Puerto Rico Investors Bracing for Default

In January 2014, Puerto Rico was working with “restructuring specialists” in New York City to work out a solution to its $70 billion debt crisis. At the time, these specialists said that a work-out was, “appear[ing] increasingly likely.” Of course, the anticipated solution never came to fruition, and the situation continued to spiral out of control for the island territory and its bond investors.

Is Puerto Rico Heading Towards a Federal Bailout?

By the end of 2014, it appeared that the solution to Puerto Rico’s debt crisis might be a federal bailout similar to the one that helped the banks stay afloat in the wake of the financial crisis of 2008. However, this option seemed speculative, at best. Despite optimism among some experts, we warned: “The coming pain is likely to be felt most by retail investors whose portfolios are concentrated heavily in UBS closed-end Puerto Rico bond funds. While many of these investors have hired investment fraud lawyers to try to recoup their losses, if Puerto Rico runs out of cash, they likely will be left holding the bag.”

Is Puerto Rico Heading for a Crash?

In the spring of 2015, a crash in Puerto Rico’s municipal bond market seemed eminent. Fitch Ratings further downgraded the territory’s bonds, and Moody’s Investor Service said there was a “high probability” of a default in the next two years.

The Final Countdown to Puerto Rico’s May 1 Deadline

Fast forward two years, and Puerto Rico misses its deadline to restructure its $70 billion debt load without formal bankruptcy proceedings. Two days later, the island territory files for bankruptcy protection, and many investors are left waiting to see just how little they will recoup from their investments.

Puerto Rico Bond Losses? Speak with a Securities Arbitration Lawyer for Free

At Zamansky LLC, we are committed to helping investors in Puerto Rico’s municipal bonds recover their investment losses. If you invested in a Puerto Rico bond fund through UBS, Wells Fargo or another brokerage firm, call (212) 742-1414 or send us a message online to find out if you may be eligible for securities arbitration.