Last week Puerto Rico passed a restructuring law that caused an immediate downgrade to it's debt from all three of the major rating services. Moody's Investors Service cut the Puerto Rican bonds three notches from a Ba2 to a B2. This leaves the bonds five notches below investment grade.
The bonds which are backed by the island's sales-tax revenue, were also cut. Moody's took the additional action on the sale-tax debt and general obligation bonds mainly because it felt the new law impacts all of the Puerto Rico bonds, even beyond those which were referenced in the new law.
This new law put investors on edge concerning a potential default. This sent prices on the agency-backed debt sharply lower.
"By providing for defaults by certain issuers that the central government has long supported, Puerto Rico's new law marks the end of the commonwealth's long history of taking actions needed to support its debt," said the Moody's analysts.
Soreide Law Group is actively filing cases against broker/dealers for those investors who suffered substantial losses in Puerto Rican bond investments. Call (888) 760-6552, for a free consultation if you've invested in Puerto Rico Bond Funds.
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