Puerto Rico's Worsening Credit Ratings May Substantially Increase Investor Losses And Impact Investor Claims

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Nov 18, 2013, 05:09 ET

SAN JUAN, Puerto Rico, Nov. 18, 2013 /PRNewswire/ -- Puerto Rico's worsening credit ratings may substantially increase investor losses and impact investor claims. Lawyers with the securities law firm Shepherd Smith Edwards & Kantas LLP, http://www.ubs-taxfree-puertorico.com/, have been investigating the claims of many investors who purchased Puerto Rico municipal bonds at the recommendation of their broker.

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Samuel Edwards. (PRNewsFoto/Shepherd Smith Edwards & Kantas LLP) (PRNewsFoto/SHEPHERD SMITH EDWARDS & KANTAS)

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On Thursday, Fitch Ratings put Puerto Rico's general obligation municipal bonds on negative watch, joining both Moody's and Standard & Poor's who had already done so. All three ratings agencies already rate Puerto Rico's general obligation bonds as the lowest category above non-investment grade, or "junk," status. Puerto Rico currently has approximately $11 billion in outstanding debt in this category. A negative watch by the ratings agencies indicates that it is likely that this debt will get downgraded to junk-bond status in the coming months.

This would immediately cause substantial consequences. Many of the owners of Puerto Rico's debt are investment companies, like mutual funds. Many of those companies are only permitted by their operation requirements to own investment grade securities. As a result, if Puerto Rico bonds get downgraded to junk, billions of dollars of those bonds would be required to be immediately sold, which would also cause a corresponding huge drop in the price of those bonds. There are very few buyers on the market currently, far less than what would be needed to absorb such a large sale without a very large discounted price.

Puerto Rico would also see a surge in costs for obtaining new financing, which Puerto Rico has been heavily relying upon for years to cover the island's expenses. This would make it all the more difficult for Puerto Rico to avoid a downward spiral, lacking the resources necessary to fix Puerto Rico's weak economy in order to ultimately support the outstanding debts.

The market has already put a substantial risk premium on Puerto Rico general obligation bonds. On Thursday, the cost to insure one of these bonds was approximately 60% of the price of the bond over 5 years. That means that an investor would have to yield 12% annualized returns just to break even on the costs of insurance. This also makes insuring these bonds more expensive than many troubled countries around the world, including Greece.

All of these things indicate that, for investors who hold these bonds, things are likely to get worse in the near future. If you are or were a customer of UBS Puerto Rico who invested in Puerto Rico municipal bonds at the recommendation of your broker, either through a mutual fund or proprietary product, or directly, contact the law firm of Shepherd Smith Edwards & Kantas LLP for an evaluation of your account to determine if you might have a claim to attempt to recover some or all of your losses. All communications will be kept strictly confidential, and you will not be billed in any way for a consultation.

Shepherd Smith Edwards & Kantas LLP has a team of attorneys, consultants and staff with more than 100 years of combined experience in the securities industry and in securities law. For more than two decades, our firm has represented thousands of investors throughout the United States, Puerto Rico, and internationally to recover losses suffered through brokerage firms and banks. We have represented clients in Federal and state courts and in arbitration through the Financial Industry Regulatory Authority (FINRA), the New York Stock Exchange Inc. (NYSE), the American Arbitration Association (AAA) and in private arbitration actions. More information can also be found at www.ubs-taxfree-puertorico.com.

Contact Info: 866-377-2529

Sam Edwards [email protected]

Luis Acevedo [email protected]

SOURCE Shepherd Smith Edwards & Kantas LLP