A National Securities Arbitration & Investment Fraud Law Firm

Facebook IconTwitter IconLinkedIn IconJustia IconFeed Icon

Articles Tagged with credit ratings downgrade

Published on:

The Standard & Poor’s and Moody’s credit ratings agencies downgraded Puerto Rico’s general obligation bonds to BB+ and Ba2, respectively, which is below the investment grade status given to most U.S. municipal bonds. The downgrade had been prognosticated by many brokerage firm research analysts, including UBS Financial Services (UBS) over the last several weeks. UBS Financial Services’ recent report Municipal Brief: Puerto Rico Credit & Market Update dated January 29, 2104, predicted downgrade and additional problems for Puerto Rico Municipal Bond Investors. The reported sentiments of UBS Wealth Management research analysts Thomas McLoughlin and Kristin Stephens are clear, “The probability of a downgrade of the Commonwealth’s GO and related bond ratings by all three ratings agencies into the non-investment grade category by the end of the fiscal year (30 June 2014) is high. Given the myriad obstacles facing Puerto Rico, we believe that at least one rating agency will take such an action within the next 30 days.” UBS research opinions were also consistent with recent moves by S&P Dow Jones Indices which oversees the methodology used for constructing the S&P National Municipal Bond Indices that are used by investors to track the performance of municipal bonds issued throughout the U.S.

On December 20, 2013, S&P Dow Jones Indices announced the removal of U.S. territories, including Puerto Rico, from the S&P Municipal Bond “investment grade indices.” According to S&P Dow Indices, the removal of Puerto Rico municipal bonds as a component from the U.S. National Municipal Bond Market indices was due to dissimilarities between the “performance and characteristics” between the U.S. territories, including Puerto Rico, and the universe of “investment grade” municipal bonds issued by states and municipalities throughout the country. These changes were originally to be made on a gradual basis through March 2014. On January 8, 2014, S&P Dow Jones Indices hastened the removal of U.S. territories, including Puerto Rico municipal bonds, from S&P National AMT-Free and S&P AMT-Free Municipal Series Indices which was now effective January 2014 month end.

The removal of Puerto Rico municipal bonds from the universe of “investment grade” municipal bonds could potentially result in increased sell orders from municipal bond portfolio managers driving prices lower. Selling pressure from municipal bond portfolios including large mutual funds that hold Puerto Rico municipal bonds could be required because of fund-imposed “investment grade” mandates or money manager negative sentiment about the Puerto Rican economy. UBS Puerto Rico Family of Funds, including UBS Puerto Rico Fixed Income Funds and UBS Puerto Rico Investors Tax Free Funds, that are leveraged 50% against an underlying portfolio of Puerto Rico municipal bonds which may soon face lower prices. The effects of leverage on further price declines could be disastrous for closed-end funds that are illiquid and non-traded.

Published on:

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;
Contact Information