Articles Posted in Municipal Bonds

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with unscrupulous investment brokers selling municipal bonds.

Although municipal bonds are generally regarded as “safe,” that is, investors are, in most cases likely to be paid interest over the life of the bond, “muni” bonds don’t guarantee payments. The market has been under duress lately as the coronavirus pandemic has bruised government bodies by reducing tax revenues. If investors generally fear that they won’t be paid, then prices of these bonds fall.

Municipal bonds are debt securities usually issued by government entities to raise money for a wide range of projects from schools to airport expansions. Munis come in several varieties. Many “general obligation” bonds have interest payments, or coupons, that are not taxed while others are taxable. Like other bonds, their coupon yields are based on the amount of risk an investor takes in purchasing them. The higher the risk, the lower the bond’s credit rating – and the higher the interest payment. You’re usually compensated for taking on more risk.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from risky municipal bonds. One of the most troubling investments for investors has been bond mutual funds and single municipal bonds issued by Caribbean territories like Puerto Rico. The island was devastated by Hurricane Maria and a debt crisis. The island’s government, which issued billions in municipal bonds, filed for bankruptcy, which forced bondholders to take losses. Like Puerto Rico, the neighboring Virgin Islands may be facing a debt meltdown of its own.

The U.S. Virgin Islands, also severely damaged by two hurricanes in recent years, is also dealing with an ongoing debt crisis. With only about 100,000 inhabitants spanning three Caribbean Islands, the U.S. protectorate had been issuing high-yield municipal bonds in recent years to fund essential government services such as a power utility. The government owes more than $6.5 billion to creditors, which averages some $19,000 per resident. In addition, the islands have billions in unfunded pension and healthcare obligations. That’s one of the highest per-capita debt loads in the Western Hemisphere.

The debt explosion in the Virgin Islands has gone from bad to worse. Three years ago, credit ratings agencies slashed the ratings on government bonds to junk status. While that made the bonds’ yields more attractive (they rose), it also indicated a higher risk of default. As a result, prices on those issues dropped.

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