Fitch Ratings said it has downgraded the commonwealth of Puerto Rico's general obligation and related debt ratings to CC from B.
The ratings remain on Rating Watch Negative.
The downgrade of the ratings to CC, which indicates Fitch's belief that default of some kind appears probable, is based on public comments by the governor supporting the broad debt restructuring strategy included in an external report released this morning by GDB.
Fitch no longer believes that the commonwealth views GO debt as worthy of the higher level of protection that to date has been assumed due to the very strong legal pledge and repeated public statements to this effect. As it is difficult at this point to predict the course that the commonwealth will take from here in pursuing debt restructuring, Fitch does not believe it is meaningful to distinguish among the various securities and with this rating action brings all of the commonwealth debt that is rated by Fitch to CC Rating Watch Negative.
Fitch notes that in recent months the legislature passed a significant tax increase in support of budget balance and now seems to be in the final stages of negotiating a budget that both funds debt service and makes further progress in controlling operating spending. Nevertheless, it now seems clear that this provides only minimal comfort that the commonwealth will make full and timely payment on its obligations to bondholders. In addition, the advocacy of restructuring has further increased the challenges to a successful Puerto Rico Infrastructure Finance Authority (PRIFA) financing to bolster liquidity.
With today's action, Fitch has downgraded to CC and maintains the Rating Watch Negative on all of the following ratings:
- $13 billion Commonwealth of Puerto Rico GO bonds;
- $6.7 billion Puerto Rico Sales Tax Financing Corporation (COFINA) senior lien sales tax revenue bonds and $8.5 billion COFINA first subordinate lien sales tax revenue bonds;
- $2.9 billion Employees Retirement System of the Commonwealth of Puerto Rico (ERS) pension funding bonds;
- $1.4 billion Puerto Rico Public Buildings Authority (PBA) government facilities revenue bonds guaranteed by the Commonwealth and rated by Fitch and $658 million Puerto Rico Aqueduct and Sewer Authority (PRASA) Commonwealth guaranty revenue bonds;
- $3.4 billion PRASA senior lien revenue bonds.
