Securities Arbitration Lawyers BlogPending Credit Ratings Downgrades on Puerto Rico Municipal Bonds Weigh Heavily On Leveraged UBS Closed-End Bond Funds
UBS Financial Services of Puerto (UBS )recently reported the net asset values (NAV) for their proprietary closed-end funds mat suffer future losses. These funds are a part of the UBS Puerto Rico Family of Funds which are marketed exclusively to Puerto Rico residents. The UBS Puerto Rico Fixed Income Funds and UBS Puerto Rico Investors Tax Free Funds, are leveraged 50% and concentrated in Puerto Rico issuers, continue to suffer losses with many Puerto Rico issuer credit ratings coming under review for potential downgrades. As of January 2, 2014, UBS reported the UBS Puerto Rico Fixed Income Funds and UBS Puerto Rico Investors Tax Free Funds have declined on average another 7.15% and 4.16%, over the last 22 days.
According to UBS Financial Services, Puerto Rico Municipal Bonds are currently under review for a downgrade in credit quality by Moody’s Rating Agency. The Moody’s Global Credit Research report dated December 11, 2013 stated that approximately $52 Billion in debt financing is affected by the downgrade review. During the review period, Moody’s reports the downgrade review will focus on the following:
- The ability to access the debt market for more public finance;
- Further declines in liquidity;
- Expected near-term economic statistics;
- Continued declines in Puerto Rico economy;
- Legislative changes and reform to the Teachers’ Retirement System; and
- Fiscal budget for 2015.
The Puerto Rico Municipal Bond markets have gained the attention of other credit ratings agencies for potential downgrades including Standard and Poor’s and Fitch’s ratings services.
Ticking Time Bomb?
According to the UBS Municipal Brief: Puerto Rico Credit and Market Update dated December 12, 2013 on the turmoil in the Puerto Rico Municipal Bond market, UBS prognosticates in their own words, “We now believe the probability of a downgrade from at least two rating agencies by the end of the fiscal year has increased markedly from an already high level.”
For Puerto Rico investors still holding UBS closed-end bond funds or other municipal bond investments, the pending credit ratings downgrades have become a ticking time bomb.