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UBS AG Offers to Repurchase Select UBS Puerto Rico Family of Funds Closed-End Bond Funds Holding Puerto Rico Municipal Debt

According to InvestmentNews, Switzerland-based UBS AG will be extending offers to select UBS clients to repurchase shares of certain funds in the UBS Puerto Rico Family of Funds, 14 proprietary closed-end bond funds containing Puerto Rico municipal bonds.

Bloomberg reports that UBS’s limited buyback program will only apply to certain of the 14 closed-end proprietary funds known as the UBS Puerto Rico Family of Funds. According to Bloomberg, the UBS Puerto Rico Family of Funds contain restrictions which prevent the funds from repurchasing more than 25 percent of the fund’s outstanding shares over the life of the investment. If a particular closed-end bond fund is close to that limit, it may chose not to repurchase any of its shares according to Bloomberg.

UBS’s spokesperson, Karina Byrne, is reported as saying that the offers would be at net-asset value (“NAV”) or below, and would only be made to UBS clients in Puerto Rico who hold the Puerto Rico closed-end municipal bond funds, and those with loans issued by UBS Bank USA secured by the closed-end muni bond funds.

According to the UBS website, the closed-end Puerto Rico municipal bond funds were initially offered to the public at $10 per share. UBS’s website reflects that the current NAV of the Puerto Rico muni bond funds is now far below $10.

The 14 closed-end UBS proprietary bond funds that contain Puerto Rico muni bonds were offered exclusively to Puerto Rico residents by UBS Financial Services of Puerto Rico, according to offering documents. Unlike open-end funds that are listed on an exchange, closed-end funds are only traded on a secondary market between investors. Since the UBS Puerto Rico Family of Funds were introduced in 1994, UBS has facilitated secondary market transactions for its clients by maintaining a trading desk that quotes the bid and offering prices for each fund and executing the transactions on behalf of its customers. When the value of Puerto Rico municipal bonds tumbled, the secondary market quickly evaporated.

According to Bloomberg, as of November 20, UBS was reporting a net asset value of only $3.65 per share for the UBS Puerto Rico Fixed Income Fund, a decline of $6.35 per share from its $10.00 offering price. Similarly, UBS reported the net asset value of the UBS Puerto Rico Fixed Income Fund III down to $4.08, a decline of $5.92 per share.

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