Puerto Rico’s retirement system, on the brink of insolvency, is joining a lawsuit against UBS Group AG, faulting the company for poor investment returns on $3 billion it borrowed in an effort to bolster the pension, Bloomberg News reported yesterday. UBS underwrote bonds sold by the employees and judiciary retirement systems in 2008 and served as the investment consultant. The income from reinvesting the proceeds was supposed to far exceed the cost of borrowing, delivering a profit. Puerto Rico said that much of the proceeds went instead into low-yielding accounts that produced “negative investment income since day one." UBS served as a major banker for the U.S. territory, which has been defaulting on a growing share of its debt and has been placed under federal financial oversight. The bank was able to legally serve as an adviser, underwriter and bond-fund manager even though such multiple roles are barred on the mainland because of the conflicts of interest. Read more.
In related news, Puerto Rico's newly created federal oversight board, charged with helping the U.S. commonwealth navigate through a crushing $70 billion debt burden, will hold its first meeting tomorrow in New York City. The seven-member board, created by the U.S. Congress in part to stave off a massive default and help the Puerto Rican government renegotiate its debt obligations, is scheduled to meet at 8:30 a.m. EDT, when it will elect a chairperson. The board also said that it will formally request from Puerto Rico's governor the submission of a fiscal turnaround plan, which is a key requirement of the federal Puerto Rico rescue law that created the board, known as PROMESA. Click here to view the agenda.
For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.
