In April 2017, Government Development Bank (GDB) for Puerto Rico decided to liquidate and proposed a fiscal plan that calls for winding down its operations during the next 10 years. The bank can’t repay its obligations to bondholders and is preparing to wind down operations. The bank owes about $4.5 billion to bondholders, including hedge funds.
This liquidation was approved by the federal board overseeing Puerto Rico’s financial restructuring. During this time, the bank will continue to collect on outstanding loans to Puerto Rico agencies and make disbursements to bondholders and depositors. While the private talks continue, advisers to Puerto Rico proposed that creditors enter into standstill agreements to prevent litigation.
This debt is a small percentage of the island’s $70 billion debt, which was brought on through borrowing to finance budget deficits.
In March 2017, the board already approved a 10-year fiscal plan (see our previous post here), which sets to manage their financial overhaul thorough meaningful talks with creditors who hold more than $70 billion of defaulted debt. According to the plan, “the Government will undertake fiscal measures that will reduce the fiscal gap by $39.6B, and create a 10 year cash flow surplus of $7.9B.” This fiscal plan allots $800 million per year for debt service.
Court protection from litigation as part of the debt-relief law (Title III) passed by Congress in June expired on May 1, 2017. Now there is less money to go toward lawsuit settlements, many of which have already been filed, with many more yet to be filed.
The board has also approved fiscal plans for other government agencies in Puerto Rico, such as the highway authority, sewer company and public power monopoly, which owe billions of dollars in municipal bond debt. The Puerto Rico Electric Power Authority (PREPA) has established a $9 billion deal with its creditors, which requires the authority to sell off assets and privatize aspects of its power-generating capabilities.
The Puerto Rico Aqueduct and Sewer Authority (PRASA) has just a $750 million offering that they ended in late 2015, which is in the best fiscal shape as they were the last to attempt the bond market.
Erez Law has filed over 200 FINRA arbitration claims for investors that invested and lost money in Puerto Rico bonds. Erez Law represents investors both in Puerto Rico and in the mainland U.S. in claims against brokerage firms such as UBS, Merrill Lynch, Santander Securities, Oriental Financial Services, Popular Securities, and Morgan Stanley.
Financial advisors have an obligation to recommend only suitable securities and investment strategies. Stockbrokers also have an obligation to disclose all material risks related to their investments. If a financial advisor recommended Puerto Rico bonds or funds and it was not suitable or appropriate given the client’s risk tolerance or if the broker failed to disclose the risks related to the investment, the broker and the firm may be liable for the client’s losses.
If you have experienced investment losses as a result of Puerto Rico bonds, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.