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Investors in Puerto Rico Municipal Bonds and Closed-end Funds May Suffer Additional Losses if Puerto Rico Restructures its Municipal Debt

Posted: July 1st, 2014

July 1, 2014 – Puerto Rico’s governor Alejandro Garcia has recently signed a law that could permit certain public corporations restructure its municipal debt. This action signals worsening financial trouble for Puerto Rico, and several newspapers have reported a potential default by the Puerto Rico Electric Power Authority is looming in the very near future.

According to news articles, the new law intends to create an organized process through which some debt can be cut or reduced. The legislation does not currently apply to Puerto Rico’s general obligation debt. This new law is being proposed in part because Puerto Rico’s Constitution prohibits it from filing for federal bankruptcy protection like Detroit or other United States municipalities have done in the past.

In response to the newly passed law, U.S. Mutual fund companies holding about $1.7 billion in Puerto Rico debt have filed suit against Puerto Rico arguing that the law, modeled after the U.S. bankruptcy code, could undermine the rights of investors. According to the complaint, since the law was passed bonds issued by the Puerto Rico Power Authority, and/or those maturing in 20 years or beyond have dropped in value by approximately 15%. Short-term bonds, those with maturing dates over the next four years, have fallen as much as 40%.

As Puerto Rico is seeking to restructure its debt load, many Puerto Rico investors fear bonds and the UBS Closed-end funds will suffer additional significant losses on their bonds or closed-end funds.

Silver Law Group represents many institutional and retail investors in Puerto Rico municipal debt or leveraged bond funds concentrated in Puerto Rico debt sold by UBS and other investment banks for claims torecover improper losses. If you or someone you know has invested in Puerto Rico debt and would like to discuss your legal rights, please contact us for a free consultation at ssilver@silverlaw.com or Toll Free at (800) 975-4345.