NEW YORK - Standard & Poor’s Monday upgraded $9.2 billion of Puerto Rico general obligation bonds to BBB from BBB-minus, due to stronger revenue performance.
The outlook is stable.
The administration during the past two years has cut its payroll, reduced spending, and implemented tax increases to help end habitual gaps in the commonwealth’s operating budget. The goal is to achieve structural balance by fiscal 2013.
“The upgrade is based on our view of the commonwealth’s recent revenue performance and continued efforts to achieve fiscal and budgetary balance,” Standard & Poor’s analyst Horacio Aldrete-Sanchez said in a report. “We believe that the collections from the recently enacted excise tax, which have exceeded the government’s expectations, will provide the commonwealth with additional flexibility to continue to narrow the budget gap and achieve structurally balanced budgets in the next two years.”
Conversely, Puerto Rico’s GO credit rating could be “negatively pressured” if the island fails — in the next two years — to take on its $17 billion unfunded pension liability, Standard & Poor’s noted. The retirement fund has a low funding ratio of 9.8%.
