Investors in Puerto Rico bonds – in particular, retail investors located in the U.S. Territory who invested in various proprietary closed-end funds (“CEFs”) structured and marketed by firms including UBS Puerto Rico, Santander Securities, and Popular Securities — have suffered massive losses since late 2013 when Puerto Rico’s bond prices witnessed significant deterioration following years of recession and ballooning municipal debt. Now, in the wake of Hurricane Maria, these huge losses are deepening as institutional investors with large Puerto Rico bond holdings seek to exit their positions.
As recently reported in the Wall Street Journal on October 25, 2017, Franklin Resources Inc. (NYSE: BEN), one of the largest creditors of Puerto Rico debt (the company sponsors approximately 200 mutual funds under the Franklin Templeton moniker) sold hundreds of millions of dollars of Puerto Rico debt in recent weeks. Franklin Resources and other large institutional investors, including hedge funds and Oppenheimer Holdings Inc. (NYSE: OPY), have collectively determined that holding Puerto Rico debt is untenable in light of the island’s anticipated debt restructuring (a process initiated in 2016) and, more recently, the massive devastation to Puerto Rico due to Hurricane Maria.
Before the hurricane hit Puerto Rico, its General Obligation (“GO”) Bonds maturing in 2035 were already trading at a significant discount to par, priced at around $0.60 on the dollar. Following Maria, these same GO bonds cratered even further, losing approximately 50% of their pre-hurricane value.