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U.S. investors' exposure to Puerto Rico debt

Tuesday, August 04, 2015 - 01:29

Many investors may be unaware of their exposure to Puerto Rican debt, and could face losses now that the country has defaulted on a payment. Bobbi Rebell reports.

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Some American investors are suffering the consequences of Puerto Rico's debt crisis. The island defaulted on a Public Finance Corp or PFC debt payment by paying only a fraction of what was due on August 1st. Thomson Reuters' Senior Market Strategist, Daniel Berger. (SOUNDBITE) DANIEL BERGER, SENIOR MARKET STRATEGIST, THOMSON REUTERS MUNICIPAL MARKET DATA (ENGLISH) SAYING: "What's really significant is that Puerto Rico was widely held by mutual funds. About half of its debt was held by mutual funds, because it is triple tax free, which means that individual investors may have unwittingly invested in Puerto Rico bonds." According to Thomson Reuters data, holders of PFC debt include OppenheimerFunds, Franklin Templeton and Lord Abbett. Puerto Rico's economic problems have been known for a long time. The commonwealth has been in recession for a decade. In June, the governor shocked investors saying the island's debt, at more than $70 billion, was unpayable and had to be restructured. Moody's Managing Director Tim Blake: SOUNDBITE: TIM BLAKE, MANAGING DIRECTOR, MOODY'S (ENGLISH) SAYING: "There will certainly be litigation from bond holders who aren't paid, and, so, then the question is, will that litigation be consolidated somehow? Will the government be able to do sort of a comprehensive restructuring of its debt? Will it be orderly, or will it, kind of, devolve and be very extended?" Moody's and Standard and Poor's cut their ratings on the debt. Some market watchers say, the default was strategic, a move to get bondholders to negotiate.

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U.S. investors' exposure to Puerto Rico debt

Tuesday, August 04, 2015 - 01:29