This question is on the minds of many investors. Many clients and potential clients have contacted our firm concerned about the effect of a default on their UBS Puerto Rico municipal bond funds that are heavily invested in the island’s debt
The UBS Puerto Rico bond funds, including the Puerto Rico Fixed Income Fund and the Puerto Rico Investors Tax-Free Fund series, invested up to 140% in Puerto Rico debt through the employment of leverage. The extreme use of leverage has exacerbated recent declines. As losses continue to increase clients tell us very similar stories about how their brokers recommended that they invest as much as 100% of their portfolios in the UBS Puerto Rico closed-end funds.
Now our clients worry about a potential Puerto Rico default on its municipal debt. Puerto Rico’s public debt of $53 billion is nearly $15,000 per person. When you add on the severely under-funded pension and healthcare obligations, the amount of debt approaches $160 billion, or $46,000 per person.