Who Owns Puerto Rico's Massive Debt? You Do!

Are you exposed to Puerto Rico's massive debt? Hurricane Maria just made things go from bad to worse on the island, and the vast majority of the bonds are held by mom-and-pop investors. This from CNN- 

Long before Hurricane Maria left millions on the island without power or water, Puerto Rico was battling a financial crisis years in the making. Puerto Rico's crippling debt load -- totaling $73 billion -- forced the island to file in May for the biggest U.S. municipal bankruptcy in history.

President Trump pointed out Puerto Rico's "massive debt" problems on Monday. Puerto Rico, Trump tweeted, owes "billions of dollars" to "Wall Street and the banks, which, sadly, must be dealt with."

In reality, most of that money is owed to everyday investors. Less than 25% of Puerto Rican debt is held by hedge funds, according to estimates by Cate Long, founder of research firm Puerto Rico Clearinghouse.

The rest of the debt is owned by individuals and mutual funds that are held by mom-and-pop investors.

"For the most part, Main Street America owns this debt," Long said. "It's not as though these are vultures circling around the island."

Investors piled into Puerto Rican bonds over the last decade, enabling the island's unsustainable spending-spree along the way. They kept buying Puerto Rican debt even as the island fell into an 11-year recession that deepened the debt crisis. High unemployment forced hundreds of thousands of residents to flee the island, further eroding the tax base.

These risks forced Puerto Rico to pay high rates that lured bond investors searching for healthy returns in a world of historically-low interest rates. Another bonus: Puerto Rico's debt is "triple tax-exempt." That means owners of the bonds don't face federal, state or local taxes on the interest they earn.

Nearly 300 bond mutual funds own Puerto Rican debt, according to data compiled by Morningstar. Some of the biggest holders include mutual funds run by household names like OppenheimerFunds, Franklin Templeton, Goldman Sachs (GS), BlackRock (BLK) and T. Rowe Price.

Click here for the full article - http://money.cnn.com/2017/09/27/investing/puerto-rico-debt-who-owns-trump/index.html

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