Puerto Rico COFINA and PREPA Bonds May Give Rise to Investor Claims

by Gray on July 27, 2017

in Arbitration,Puerto Rico CEFs,Puerto Rico municipal bond funds

On May 3, 2017, Puerto Rico filed for a form of bankruptcy protection pursuant to a federal law passed in 2016 known as Promesa, thereby allowing Puerto Rico to facilitate a debt restructuring process in court akin to U.S. bankruptcy protection.
As recently reported in Barron’s, Puerto Rico’s bonds backed by sales tax revenue, known as COFINAS, witnessed significant price depreciation since initiation of the bankruptcy-like proceeding in early May 2017. And on May 30, 2017, U.S. District Judge Laura Taylor Swain ordered that interest payments on COFINAS be suspended, pending anticipated litigation concerning whether holders of Puerto Rico’s General Obligation Bonds (“GOs”) or COFINAS should receive first claim to any payments ordered through a debt restructuring. Amey Stone, Puerto Rico’s Cofina Bond Payments Suspended by Judge, May 31, 2017.
San Juan, Puerto Rico Coast

The Puerto Rico Urgent Interest Fund Corporation, also known as the Puerto Rico Sales Tax Financing Corporation (or Corporacion del Fondo de Interes Apremiante – COFINA in Spanish) issues bonds that are attached to Puerto Rico’s sales tax revenue. Specifically, Puerto Rico’s ‘Sales and Use Tax’, charges a 7% fee on many different transactions occurring on the Island. The revenue raised through COFINA is allocated in the following manner:
• 21.4% of the COFINA tax revenue is allocated to local municipal government;
• 39.2% of the COFINA tax revenue is allocated to state government; and
• 39.2% of the COFINA tax revenue goes to COFINA bondholders.

In light of Judge Taylor Swain’s recent order to stay further payments on COFINAS, bondholders are now left in the lurch, holding Puerto Rico debt instruments that have suffered severe price deterioration and that no longer provide the coupon payments sought by fixed income investors. If you have invested in COFINAS, or other Puerto Rico bonds including bonds issued by the Puerto Rico Electric Power Authority (known as PREPAs) and you have suffered significant losses as a result, you may be able to recover your losses in FINRA arbitration.

Arbitration cases filed with the Financial Industry Regulatory Authority (FINRA) have charged that certain stockbrokers and investment advisors in Puerto Rico have over-concentrated customer accounts in Puerto Rico bonds and other securities including closed-end funds (CEFs), leading to unnecessary losses. Firms named in some of these arbitration cases include UBS, Merrill Lynch, and Popular Securities, among others.

If you believe that you may have a claim relating to recommendations of Puerto Rico COFINA or PREPA bonds, or other securities, you contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation. The attorneys at Law Office of Christopher J. Gray, P.C. are admitted in New York and New Jersey but will also accept cases in other jurisdictions, including Puerto Rico, often working with co-counsel who are admitted in those jurisdictions.

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