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
Common Legal Mistakes NYC and New Jersey Business Owners Make
Operating a business in the New Jersey and New York City metropolitan region offers incredible opportunities, but it also requires navigating a dense and highly regulated legal environment. From entity formation to regulatory compliance, seemingly minor legal oversights can expose business owners to significant risk. In our work with businesses throughout the region, our attorneys […]
Author: Dan Brecher
What Founders Can Learn From Start-up Suits
High-profile founder litigation is more than just a media spectacle. For startup founders, these cases underscore the legal and structural risks that can arise when rapid growth outpaces formal oversight. While launching a new company can be both an exciting and deeply rewarding endeavor, founders must be mindful that it also comes with significant risks. […]
Author: Dan Brecher
Corporate Governance Reviews: A Practical Guide for New Jersey Companies
Every New Jersey company should periodically evaluate its governance framework. Strong corporate governance protects directors and officers, builds investor confidence, reduces litigation exposure, and positions a company for sustainable growth. The first quarter of the year is a great time to evaluate your corporate governance practices and perform any routine maintenance needed to keep that […]
Author: Ken Hollenbeck
What to Do After Being Served with a Lawsuit: Steps to Protect Your Legal Rights
Being served with a lawsuit is one of the most stressful legal events a business or individual can face. Whether the claim involves a contract dispute, an employment matter, an intellectual property issue, or another legal challenge, the actions you take in the first few days can significantly shape the outcome of your case. Acting […]
Author: Robert E. Levy
Will 2026 Be a Banner Year for SPACs? Understanding the Risks and Opportunities
Special Purpose Acquisition Companies (SPACs) continue to gain momentum as we move through 2026. After enduring a significant contraction following the 2021 boom and the regulatory scrutiny that followed, SPAC activity rebounded sharply in 2025 and now carries forward into 2026 with real momentum. The SPAC resurgence reflects broader improvements in both market conditions and the […]
Author: Dan Brecher
Why Compliance Monitoring Matters for NY and NJ Businesses
Compliance programs are no longer judged by how they look on paper, but by how they function in the real world. Compliance monitoring is the ongoing process of reviewing, testing, and evaluating whether policies, procedures, and controls are being followed—and whether they are actually working. What Is Compliance Monitoring? In today’s heightened regulatory environment, compliance […]
Author: Dan Brecher
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.