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, Corporate Transactions & Business, Bankruptcy Litigation
- Locations: Red Bank, NJ, New York City, Little Falls, NJ
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
Fort Monmouth Redevelopment and the Transformation of Monmouth County Real Estate
The Fort Monmouth redevelopment has entered its execution phase, and it is repositioning the broader Monmouth County real estate market. When Netflix and the Fort Monmouth Economic Revitalization Authority closed on the 292-acre Mega Parcel in December 2025, the transaction did more than hand over a deed. It marked the moment Fort Monmouth stopped being […]
Author: Donald M. Pepe
Local Zoning and Land Use Rules Every New Jersey Rental Property Owner Should Understand
Owning a residential rental property in New Jersey involves more than finding tenants and collecting rent. Property owners must comply with a combination of state laws, municipal ordinances, building and housing codes, and zoning and land use regulations. These requirements can affect everything from the number of dwelling units permitted at a property to whether […]
Author: Donald M. Pepe
Real Estate Litigation Explained: Top 5 Disputes and How to Avoid Them
The five most common real estate disputes are breach of contract claims, landlord-tenant conflicts, zoning and land use disagreements, construction claims, and boundary disputes. Understanding why each arises, and taking preventive steps early, can help property owners, tenants, developers, and investors avoid costly litigation. Key Takeaways: Real estate transactions are complex endeavors involving numerous parties […]
Author: Paul Grossman
When a Child Turns 18: The Gap in Your Family’s Estate Plan
Once a child turns 18, parents lose the automatic legal authority to make medical and financial decisions on their behalf, even if the child still lives at home or remains on the family’s insurance. Three documents close that gap: a durable power of attorney, a health care proxy or directive, and a HIPAA authorization. For […]
Author: George McGowan
Business Mediation: An Overview and Practical Tips
Business mediation is a confidential, voluntary process in which a neutral third party helps companies negotiate a resolution to a commercial dispute without going to trial. Because working with a mediator is very different from litigating in the courtroom, it is important to understand how commercial mediation works, when it makes sense for your dispute, […]
Author: Paul Grossman
Top 5 Causes Leading to Construction Defect Litigation
The five most common causes of construction defect litigation are design defects, substandard materials, workmanship defects, code violations, and subsurface defects. Because these flaws can compromise a building’s integrity, functionality, or safety, they frequently lead to disputes involving multiple parties and high financial stakes. Key takeaways: What is Construction Defect Litigation? Construction litigation is complex, […]
Author: Paul Grossman
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.