Joel R. Glucksman
Partner
201-896-7095 jglucksman@sh-law.comFirm Insights
U.S. Bond Funds Concerned About Puerto Rico Bankruptcy
Author: Joel R. Glucksman
Date: July 8, 2014
Key Contacts
Back
U.S. mutual funds holding $1.7 billion in Puerto Rican debt have sued the commonwealth in an attempt to reverse a bill modeled after the protections offered under Chapter 11 of the bankruptcy law, according to Reuters. Puerto Rico is one of the largest issuers of debt in the U.S. municipal bond market, in part because its constitution forbids the enactment of bankruptcy law for the adjustment of debts. The complaint alleges that the commonwealth recently passed an act that explicitly mirrors these protections.
This act sent ripples through the $3.7 trillion municipal bond market, driving down the value of revenue bonds issued by PREPA, or the Puerto Rico Electric Power Authority, the news source reported. U.S. municipal bonds funds are the largest holders of the commonwealth’s debt because it is tax-exempt across the country. Fitch Ratings downgraded PREPA to CC from BB last week following the passage of the act.
Puerto Rico is known historically for paying its debts, but recent economic troubles have bond holders wondering whether PREPA will attempt to restructure, according to Money News. The island’s economy has been struggling with growth for the past eight years, and it currently has a 13.8 percent unemployment rate. The tax-free bonds offered by the commonwealth offered a competitive advantage that allowed it to sell debt in order to fill budget deficits and cover expenses. This same combination caused New York City to come dangerously close to bankruptcy in the 1970s.
If PREPA were to fail to act, investors who were recently hit by bankruptcies in Detroit and Jefferson County would have to absorb another financial blow, the news source reported.
“Puerto Rico has crossed the Rubicon; it’s crossed the line,” Richard Larkin, director of credit at Fairfield, Connecticut, investment firm Herbert J. Sims & Co., told Money News. “This is absolutely a big deal and bigger than Detroit and bigger than Jefferson County because there’s more money involved.”
I have previously written about Puerto Rico’s bankruptcy option in 2013, check out the full story at Puerto Rico Lacks Bankruptcy Option.
If you have any questions about this post or would like to discuss your company’s creditors’ rights and bankruptcy matters , please contact me, Joel R. Glucksman at ScarinciHollenbeck.com.
- Practices: Bankruptcy & Creditors' Rights
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Related Posts
See all
Does Your Homeowners Insurance Provide Adequate Coverage?
Your home is likely your greatest asset, which is why it is so important to adequately protect it. Homeowners insurance protects you from the financial costs of unforeseen losses, such as theft, fire, and natural disasters, by helping you rebuild and replace possessions that were lost While the definition of “adequate” coverage depends upon a […]
Author: Jesse M. Dimitro
Understanding the Importance of a Non-Contingent Offer
Making a non-contingent offer can dramatically increase your chances of securing a real estate transaction, particularly in competitive markets like New York City. However, buyers should understand that waiving contingencies, including those related to financing, or appraisals, also comes with significant risks. Determining your best strategy requires careful analysis of the property, the market, and […]
Author: Jesse M. Dimitro
Fred D. Zemel Appointed Chair of Strategic Planning at Scarinci & Hollenbeck, LLC
Business Transactional Attorney Zemel to Spearhead Strategic Initiatives for Continued Growth and Innovation Little Falls, NJ – February 21, 2025 – Scarinci & Hollenbeck, LLC is pleased to announce that Partner Fred D. Zemel has been named Chair of the firm’s Strategic Planning Committee. In this role, Mr. Zemel will lead the committee in identifying, […]
Author: Scarinci Hollenbeck, LLC
Novation Agreement Process: Step-by-Step Guide for Businesses
Big changes sometimes occur during the life cycle of a contract. Cancelling a contract outright can be bad for your reputation and your bottom line. Businesses need to know how to best address a change in circumstances, while also protecting their legal rights. One option is to transfer the “benefits and the burdens” of a […]
Author: Dan Brecher
What Is a Trade Secret? Key Elements and Legal Protections Explained
What is a trade secret and why you you protect them? Technology has made trade secret theft even easier and more prevalent. In fact, businesses lose billions of dollars every year due to trade secret theft committed by employees, competitors, and even foreign governments. But what is a trade secret? And how do you protect […]
Author: Ronald S. Bienstock
What Is Title Insurance? Safeguarding Against Title Defects
If you are considering the purchase of a property, you may wonder — what is title insurance, do I need it, and why do I need it? Even seasoned property owners may question if the added expense and extra paperwork is really necessary, especially considering that people and entities insured by title insurance make fewer […]
Author: Patrick T. Conlon
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
U.S. Bond Funds Concerned About Puerto Rico Bankruptcy
Author: Joel R. Glucksman
U.S. mutual funds holding $1.7 billion in Puerto Rican debt have sued the commonwealth in an attempt to reverse a bill modeled after the protections offered under Chapter 11 of the bankruptcy law, according to Reuters. Puerto Rico is one of the largest issuers of debt in the U.S. municipal bond market, in part because its constitution forbids the enactment of bankruptcy law for the adjustment of debts. The complaint alleges that the commonwealth recently passed an act that explicitly mirrors these protections.
This act sent ripples through the $3.7 trillion municipal bond market, driving down the value of revenue bonds issued by PREPA, or the Puerto Rico Electric Power Authority, the news source reported. U.S. municipal bonds funds are the largest holders of the commonwealth’s debt because it is tax-exempt across the country. Fitch Ratings downgraded PREPA to CC from BB last week following the passage of the act.
Puerto Rico is known historically for paying its debts, but recent economic troubles have bond holders wondering whether PREPA will attempt to restructure, according to Money News. The island’s economy has been struggling with growth for the past eight years, and it currently has a 13.8 percent unemployment rate. The tax-free bonds offered by the commonwealth offered a competitive advantage that allowed it to sell debt in order to fill budget deficits and cover expenses. This same combination caused New York City to come dangerously close to bankruptcy in the 1970s.
If PREPA were to fail to act, investors who were recently hit by bankruptcies in Detroit and Jefferson County would have to absorb another financial blow, the news source reported.
“Puerto Rico has crossed the Rubicon; it’s crossed the line,” Richard Larkin, director of credit at Fairfield, Connecticut, investment firm Herbert J. Sims & Co., told Money News. “This is absolutely a big deal and bigger than Detroit and bigger than Jefferson County because there’s more money involved.”
I have previously written about Puerto Rico’s bankruptcy option in 2013, check out the full story at Puerto Rico Lacks Bankruptcy Option.
If you have any questions about this post or would like to discuss your company’s creditors’ rights and bankruptcy matters , please contact me, Joel R. Glucksman at ScarinciHollenbeck.com.