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Articles Posted in Puerto Rico CEFs

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Puerto Rico 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.

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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

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