Last month, UBS Financial Services (UBS) offered to buy back some shares of its proprietary Puerto Rico closed-end bond funds after the funds declined substantially in value in recent months. An attempt will be made to repurchase shares at net asset value or below. Bloomberg reported that UBS instructed advisors to contact clients who hold Puerto Rico closed-end bond funds and those with UBS Bank USA loans secured “in any part” by closed-end funds, and inform them about the buyback program. The UBS Puerto Rico funds are capped to prevent the repurchase of more than 25% of the outstanding shares of the fund. Some funds are closer to that limit than others.
According to Steven D. Toskes, an attorney at Klayman & Toskes, “In my opinion, the repurchase program appears to be nothing more than an attempt to stave off investor arbitration claims and an effort on the part of UBS to engage in damage control. As the bond funds were leveraged, much of the assets are no longer in the funds, having been sold off when margin calls hit earlier this year. I’d be surprised if investors are able to sell at the net asset values reported by UBS. The prices will likely be much lower. While the repurchase program provides some liquidity, the price investors will receive for the shares is unknown. What is certain is a sale at substantial losses.” Klayman & Toskes has been retained by numerous investors of the UBS Puerto Rico bond funds in order to recover their investment losses. The law firm has teamed up with Puerto Rico lawyer Osvaldo Carlo of Carlo Law Offices to prosecute these claims.
Through the end of November 2013, Puerto Rico debt has declined about 16% in 2013. As a result, the value of the UBS Puerto Rico bond funds declined significantly, some as much as 60%. Unfortunately, a number of UBS of Puerto Rico customers were over-concentrated in these funds, exposing their hard-earned money or retirement portfolios to significant risks. To make matters worse, in addition to being concentrated in these funds, some UBS of Puerto Rico customers were encouraged to buy more of these securities through lines of credit offered by Utah-based UBS Bank USA, in violation of UBS firm policy. Additionally, many clients took out margin loans to buy into these funds. With many of the bond funds already highly leveraged themselves, in some cases as high as 53%, losses were exasperated when the value of the funds declined. UBS has since announced that it put a financial advisor in Puerto Rico on administrative leave while the firm reviews loans that were issued to clients.
Klayman & Toskes has substantial experience in the field of securities arbitration and litigation, representing investors all over the world against full-service brokerage firms. If you have information relating to this commentary or wish to discuss the situation relating to the UBS PR Bond Funds, please contact Steven D. Toskes of Klayman & Toskes, P.A., at 787-919-7325.