{"id":10370,"date":"2015-07-25T06:45:02","date_gmt":"2015-07-25T11:45:02","guid":{"rendered":"http:\/\/olduvai.ca\/?p=10370"},"modified":"2015-07-25T06:45:02","modified_gmt":"2015-07-25T11:45:02","slug":"ubss-puerto-rico-bond-funds-implode-collateral-value-drops-to-zero-investors-screwed","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=10370","title":{"rendered":"UBS\u2019s Puerto Rico Bond Funds Implode, \u201cCollateral Value\u201d Drops to Zero, Investors Screwed"},"content":{"rendered":"<h3 class=\"entry-title\"><a href=\"http:\/\/wolfstreet.com\/2015\/07\/24\/ubss-puerto-rico-bond-funds-implode-collateral-value-drops-to-zero-investors-screwed\/\" target=\"_blank\">UBS\u2019s Puerto Rico Bond Funds Implode, \u201cCollateral Value\u201d Drops to Zero, Investors Screwed<\/a><\/h3>\n<p>\u201cWe believe that the probability of default is approaching 100 percent, and that losses given default are substantial,\u201d Moody\u2019s wrote on Wednesday about Puerto Rico\u2019s $72 billion in bonds that were stuffed into numerous conservative-sounding bond funds spread across America\u2019s retirement portfolios.<\/p>\n<p>\u201cBondholder recoveries will be lowest on securities lacking explicit contractual or other legal protections,\u201d the report went on, according to\u00a0<a href=\"http:\/\/www.bloomberg.com\/news\/articles\/2015-07-22\/puerto-rico-default-recovery-rates-as-low-as-35-moody-s-says\"><u>Bloomberg<\/u><\/a>. About $26 billion in bonds fall into this category,\u00a0issued by entities such as the Government Development Bank, Highways and Transportation Authority, Infrastructure Finance Authority, and Municipal Finance Authority. Investors in these bonds might recover only 35 cents on the dollar.<\/p>\n<p>Recovery rates for bonds with stronger investor protections, such as general obligation bonds, would likely range from 65% to 80%, Moody\u2019s said.<\/p>\n<p>But those recovery rates, as dire as they seem, only apply if you own the bonds outright. If you own those bonds in a bond fund, the scenario may look much, much worse, according to what UBS just did.<\/p>\n<p>Turns out, some of these bonds were underwritten by UBS and stuffed with other Puerto Rico bonds into its own Puerto Rico closed-end bond funds and sold to its own unsuspecting clients. These funds aren\u2019t traded; UBS sets the value.<\/p>\n<p>And UBS, despite the well-known problems Puerto Rico has been having for years, wasn\u2019t shy about loading up its clients up with these bonds, apparently, according to<a href=\"http:\/\/www.reuters.com\/article\/2015\/07\/23\/us-ubs-puertorico-funds-idUSKCN0PX2T720150723\"><u>Reuters<\/u><\/a>:<\/p>\n<blockquote><p>Many UBS brokers had misgivings about the funds even as UBS\u2019 Puerto Rico chairman was pushing them to sell the bonds, according to a voice recording, reported by Reuters in February.<\/p><\/blockquote>\n<p>And then there was leverage, as recommended by UBS brokers because UBS profits even more, not only in selling the bond funds but also in lending the money:<\/p>\n<blockquote><p>Many of those investors bought even more fund shares with money they borrowed through credit lines from another UBS unit, after several UBS brokers may have improperly advised them to do so, according to a $5.2 million settlement between UBS and Puerto Rico\u2019s financial regulator in 2014.<\/p><\/blockquote>\n<p>&nbsp;<\/p>\n<p>&#8230;click on the above link to read the rest of the article&#8230;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>UBS\u2019s Puerto Rico Bond Funds Implode, \u201cCollateral Value\u201d Drops to Zero, Investors Screwed \u201cWe believe that the probability of default is approaching 100 percent, and that losses given default are substantial,\u201d Moody\u2019s wrote on Wednesday about Puerto Rico\u2019s $72 billion in bonds that were stuffed into numerous conservative-sounding bond funds spread across America\u2019s retirement portfolios. [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[88,195,200,541,3824,1029,4254,4255],"class_list":["post-10370","post","type-post","status-publish","format-standard","hentry","category-economics","tag-bonds","tag-debt","tag-default","tag-moodys","tag-puerto-rico","tag-ubs","tag-wolf-richter","tag-wolfstreet"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/10370","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=10370"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/10370\/revisions"}],"predecessor-version":[{"id":10371,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/10370\/revisions\/10371"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=10370"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=10370"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=10370"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}