Fitch Ratings' BB rating on the commonwealth of Puerto Rico's general obligation bonds assumed that the commonwealth would be able to execute a sizable transaction in the near term to bolster liquidity.
The offering, in which the commonwealth sold $3.5 billion in GO bonds with a 2035 maturity, is consistent with that assumption, and demonstrates the ability of the commonwealth to access the market. Notably, the commonwealth was able to sell the full amount authorized.
Fitch believes that the successful execution of this transaction provides the commonwealth breathing room as it continues to address ongoing economic and fiscal challenges. The sale, the vast majority of which replaces existing debt rather than adding to the commonwealth's debt load, will improve liquidity at the Government Development Bank for Puerto Rico and remove potential near-term liquidity stresses.
Fitch's BB rating on the commonwealth's GO bonds reflects demonstrated weakness in the Puerto Rico economy, very high liabilities including outstanding debt and unfunded pensions, challenged though improving financial operations, and limited financial flexibility. Fitch continues to see the economy as the key to future rating direction, as economic growth will be needed to support the commonwealth's high debt levels and other long-term liabilities, as well as to achieve and maintain a structurally balanced budget.
