Resignations by nearly all of the leadership at the University of Puerto Rico in protest to budget cuts have heightened S&P Global Ratings' concerns over the school's debt challenges.
Puerto Rico Gov. Ricardo Rossell-'s Financial Advisory Authority and Fiscal Agency requested that UPR cut $300 million from its budget, prompting the resignation of the university's interim president Celeste Freytes Gonzáles and 10 of its 11 rectors effective Feb. 17. The university's series P and Q bonds are currently rated CC with a negative outlook by S&P with the ratings agency expecting default to be a "virtual certainty."
"In our opinion, the university's management turnover, campus strikes, and the proposed budget cuts that could still be enacted by the UPR board, represent significant operating challenges for the institution, and could impede its ability to make future debt payments should the current debt moratorium be lifted," said S&P analyst Charlene P Butterfield in a Feb. 27 report.
The rectors said the resignation letter that they could not "endorse a proposal that undermines higher education." Butterfield noted that an executive order signed on June 30, 201,6 by former Gov. Alejandro Garcia Padilla suspended the university's ability to make monthly debt service payments through Jan. 31, 2017, and the moratorium still remains in effect until further notice. UPR has about $432 million of debt outstanding.
"We will continue to monitor UPR's operations as they relate to possible disruption risk and debt repayment plans for the June 1 and July 1 due dates given the potential for default," Butterfield said.
