Without a net: Oppenheimer has $4 bln in uninsured Puerto Rico debt

miércoles 16 de julio de 2014 15:54 GYT

By Tim McLaughlin

BOSTON, July 16 (Reuters) - OppenheimerFunds' municipal bond portfolios hold $4 billion in uninsured Puerto Rico debt, leaving them open to bigger potential losses than rivals as the Caribbean island's fiscal problems escalate.

Rival U.S. municipal fund managers began selling uninsured Puerto Rico debt several months ago, at prices not far below insurance-backed bonds. But OppenheimerFunds' management team has kept in place one of the mutual fund industry's biggest bets, on the cash-strapped island's turnaround, fund portfolios show.

Much of that bet is not backed by insurance, unlike at other mutual fund companies, according to Oppenheimer's latest disclosure about its Puerto Rico holdings. Unrealized capital losses at OppenheimerFunds could surge if the value of Puerto Rico bonds do not recover.

The Standard & Poor's Municipal Bond Puerto Rico Index is down 3.85 percent so far in July, lagging the 0.33 decline on the broader S&P Municipal Bond Index.

OppenheimerFunds' Rochester brand of municipal funds ended June with about $28.4 billion in assets. And nearly 17 percent, or $4.7 billion, in fund assets had direct exposure to Puerto Rico. Some $4 billion of that direct exposure was not insured, according to Oppenheimer.

Uninsured bonds issued by Puerto Rico's electric authority, for example, are trading around 40 cents on the dollar, down from more than 70 cents in mid-June, according to trade activity quoted on Electronic Municipal Market Access.

OppenheimerFunds, a unit of insurer MassMutual Financial Group, declined to comment.

Until recently, OppenheimerFunds management team has insisted that Puerto Rico is able and willing to make good on about $70 billion in outstanding municipal debt. But that resolve may be weakening after Puerto Rico last month passed a law that would allow the U.S. territory to reduce or defer payments on its debt, leaving bondholders vulnerable to losses.   Continuación...