Possible Implications of S&P’s Downgrade of Puerto Rico: General Obligation Bonds to Junk Status

Today Standard & Poor’s (“S&P”) announced its decision to cut its credit rating on Puerto Rico General Obligation Bonds and Puerto Rico’s Government Development Bank (the U.S. territory’s fiscal agent) to junk level. This announcement comes after several months of a downgrade threat by all credit rating agencies (Moody’s and Fitch included). But most importantly, S&P’s downgrade represents continuing bad news for investors who originally purchased these bonds and bond funds (offered by brokerage firms such as UBS, among others) as low risk investments.

According to a report issued today by Reuters, S&P based its decision for downgrading the credit rating of the island because “it worried that Puerto Rico, a Caribbean island populated by 3.62 million people, has limited ability to sell more debt in the U.S.'s $3.7 trillion municipal bond market and faced possible cash shortages.”

Junk bonds are generally not an investment recommended for retirees or investors on a fixed income. Moreover, several bond funds do not allow for the investment of bonds below investment grade. At Vernon Litigation Group, we remain concerned that this downgrade will cause disruption in the bond market and potentially cause further losses to investors. If you have an investment in Puerto Rico General Obligation Bonds or Puerto Rico Bond Funds (underwritten primarily by UBS), we encourage you to review the numerous articles and videos found throughout this site. If you think that you have a claim involving Puerto Rican bonds or bond funds or if you have suffered significant losses from another type of investment, please contact Vernon Litigation Group at 1-877-649-5394.

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