Buy Puerto Rico Bonds

Buy Puerto Rico Bonds

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Specifically, UBS encouraged investors to over-concentrate in the high-risk, illiquid, closed-end municipal bonds of Puerto Rico without properly disclosing the risks of the investment or considering its suitability for the investors' actual goals. Many UBS clients were forced to liquidate their life savings to meet margin calls on the bonds. These victims have been left with nothing.

UBS Puerto Rico inappropriately recommended that investors concentrate their portfolios in closed-end Puerto Rican municipal bond funds. The closed-end funds were not diversified. The clients holding a high percentage of their liquid net worth in the closed-end funds and individual Puerto Rican bonds were exposed to too much risk.

UBS, as the investment advisor to many of the closed-end funds, purchased high-risk individual bonds on leverage of more than 50%. In comparison, many U.S. municipal bond funds are generally only leveraged at about 22%. Also, UBS's definition of 50% leverage is confusing at best. What it really means is that for every dollar held of investor assets, another dollar is invested with borrowed money.

For every dollar invested, another dollar is borrowed and two dollars is used to purchase bonds. As a result, 100% of the equity (the initial dollar) is leveraged. A 25% decline in the total investment is actually a 50% decline in the amount initially invested. This strategy dramatically increases risk.

UBS financial advisors also encouraged investors to buy bonds with lines of credit. In normal circumstances, if an investor buys securities on borrowed money, it is through a margin loan, which is regulated and limits the risk an investor can take. UBS financial advisors were incentivized to encourage lines of credit because they could receive a commission on the line of credit and the bonds purchased.

More than $600 million in claims have already been filed against UBS by investors who lost their life savings. Almost anyone with investments in the municipal bond market has been affected in some way by the actions of UBS Puerto Rico. According to Morningstar Inc, 77 percent of municipal bond funds hold at least some Puerto Rican bonds.

UBS financial advisors often sold these leveraged bonds to retirees and conservative investors. Leveraged bonds are a very risky, volatile investment and are often not recommended to conservative investors.

However, UBS Puerto Rico frequently sold to conservative investors, and even encouraged retirees to borrow money in order to purchase these leveraged bonds. The following UBS Puerto Rico bond are under investigation:

I would like to welcome you to our new investor relations website. We appreciate your interest and investment in bonds issued by COFINA. We are committed to being as transparent as possible with the investor community and public at large.

More than eight years after the Puerto Rico Electric Power Authority stopped paying its bonds and with most other Puerto Rico municipal issuers having since restructured their bonds, eight Puerto Rico bonds continue to pay in full and on time.

The authority "implemented significant debt service relief through two consensual modification[s]," the Puerto Rico Oversight Board said. In 2019 the authority modified about $1 billion in federal loan debt obligations and in 2020 and 2021 it refinanced $3.2 billion of bonds.

The University of Puerto Rico ($289 million outstanding) issued revenue bonds secured by tuition fees, student fees, rental, and other charges for the occupancy of UPR's facilities, net bookstore receipts, and other revenue sources.

Since the Puerto Rico central government's entrance into bankruptcy in 2017, Puerto Rico's Fiscal Agency and Financial Advisory Authority and bond trustee U.S. Bank, NA, have agreed to successive standstill agreements under which FAFAA and UPR continue to make payments and the trustee refrains from calling a default on the bonds.

While restructuring the bonds was discussed, it has not happened. In October, El Nuevo Día's website reported that Puerto Rico Secretary of the Treasury Francisco Parés said the university must restructure the debt and quoted FAFAA Executive Director Omar Marrero as saying the debt might be able to be refinanced, as was done with PRASA's debt.

The Guaynabo bonds have a similar arrangement. A nonprofit entity developed commercial real estate facilities used by Guaynabo. Debt service comes from lease payments. The nonprofit is the actual entity transferring the debt service to bondholders.

"Fund managers, they will not admit this now, but when Puerto Rico was selling debt like pancakes, they loved Puerto Rico debt," Marxuach said. "You would put ... these Puerto Rico bonds into your portfolio and since they had slightly higher interest rates and no taxes attached to them, you immediately looked like a genius. You just bumped up the entire return."

NPR and Frontline talked with more than a dozen bankers, advisers and brokers involved in Puerto Rican bonds who described a fast pace of moneymaking and competition, and politicians desperate for an influx of cash.

Many of the bonds were specifically designed to be sold to Puerto Ricans, packaged into special funds that were less transparent than anything regulators would allow on the mainland. Regulations against things such as banks recommending their own bond deals to investors didn't apply on the island.

Wall Street listened and 275 investment firms jumped all over the offer the Commonwealth made in 2014. They did it regardless of the fact that the three main credit rating agencies had classified the bonds as junk, or that many economists and financial analysts had predicted, many years before, that Puerto Rico was headed toward an economic and fiscal precipice.

In all, the companies ordered more than $16 billion combined of the $3.5 billion offer, which was sold at .93 cents on the dollar and an 8.73% yield. Some firms managed to buy $120 million in bonds, while others that put in orders came up empty-handed.

For example, the firm of Paulson & Co. ordered $200 million, but received $120 million (60%). Of the 275 firms that opted to buy Puerto Rico junk bonds, only nine received 100% of the amount of bonds ordered, as was the case with Barclays, administrator of the of the emission, also registered as Co-Managers and Barclays Wealth ($91,525,000), and Commonwealth Advisors ($1,250,000).

Underwriters, comprising a group of investments banks that market the debt, usually decide the amount of bonds each firm receives. That decision may be determined by several factors, some of them abrbitrary, such as the business relationships they may have with the bank, or the time when the firm makes the order, according to sources with knowledge of the financial markets consulted by the Center for Investigative Journalism (CPI, by its initials in Spanish) who asked to speak on condition of anonymity because of their roles in the industry.

Within the group of banks that moves the debt, there is one that is the leader, or manager, of the bond issue and decides what percent will go to the other banks or financial institutions within the group. After receiving the percentage of bonds assigned to them by the main bank, these institutions in turn distribute them among the investment firms that are its clients and ordered a buy. Some investment firms are clients of several investment banks.

Three bank groups participated in the 2014 bond issue. Barclays Capital was the principal in a group composed by BofA Merrill Lynch; First Bank PR Securities and Popular Securities. Morgan Stanley was the principal in the group comprised by Goldman Sachs & Co.; JP Morgan; Jefferies Mesirow Financial Inc. and Santander Securities. RBC Capital Markets was the principal of the group comprised by Ramírez & Co. Inc.; Oriental Financial Services and UBS FS Puerto Rico. The group of banks purchased bonds with a discount of $28,130,460.67 off the original price offer and has the right to resell them at a price lower than that initial offer, according to the original indenture of the 2014 bond issue.

The CPI found that between 2007 and 2016, Barclays has paid $15,100 million in fines and compensations to more than 15 regulatory bodies and private sector clients. The list of accusations includes fraud during the management and sale of junk bonds; lack of transparency; not adequately provide reports; fraud and bad advice to customers; poor management of accounts and funds; use of confidential information to benefit clients; manipulation of financial data; price manipulation and massive tax evasion.

Vulture funds bought the bulk of the bond issuance, with Brigade Capital Management, Fir Tree, Perry Capita, Paulson and Company and Goldman Sachs Asset Management heading the transaction, each with $120 million. Some of the firms that bought bonds from that issue may have already sold their part or purchased bonds from other entities, such as the Puerto Rico Electric Power Authority or the Sales Tax Financing Corp. (known as COFINA by its initials in Spanish).

Brigade is also part of the Puerto Rico Ad Hoc Group Executive Committee, along with other firms that bought General Obligation bonds such as Centerbridge, Davidson Kempner, Canyon, Monarch, Stone Lion and Fir Tree. Since 2015, hedge funds formed groups according to the type of bonds they owned and hired law firms to defend themselves against the government in the event of any dispute over the debt. These groups of bondholders also formed to influence negotiations, change constantly according to their composition and depending on how their members sell or buy different bonds.

Since 2013, seven months prior to the issuance of 2014, investment banks were seeking new clients for Puerto Rico bonds, as a result of the stampede of traditional investors caused by the emerging government crisis. According to Bloomberg, representatives from Citigroup and Morgan Stanley made a private presentation to investors in New York about Puerto Rico bonds and Lazard Capital Market also organized a similar event. The Citigroup presentation drew 200 participants, including Och-Ziff Capital, Highbridge and P. Schoenfeld Asset, who are now confirmed buyers of the 2014 issuance. 781b155fdc