Hurricane Maria’s impact on Puerto Rico is a credit negative for Assured Guaranty Corp. and National Public Finance Guarantee Corp., Moody’s Investors Service said.

The two bond insurers face the biggest threat from Maria of any of the island's financial creditors, Moody’s vice president James Eck wrote in a report Monday.

AGC wraps $1.7 billion of net par in Puerto Rico bonds, while NPFG has $4 billion in gross par exposure outstanding, including accreted interest on capital mediation bonds, Moody's said. Puerto Rico had $68.7 billion of public sector debt owed to external creditors as of February.

Moody's rates AGC A3 with a stable outlook and NPFG A3 with a negative outlook.

If a “higher-than-expected loss severity results from a [debt] restructuring” there could be significant capital deterioration at AGC or NPFG, Eck said, in the report, titled “Hurricane Maria’s Impact on Puerto Rico is Credit Negative for Its Financial Creditors.”

Puerto Rico Gov. Ricardo Rosselló
Puerto Rico Gov. Ricardo Rossello

However, “We expect Assured Guaranty Municipal Corp.’s capital to be only modestly affected under a wide range of loss scenarios,” he said.

“Although Puerto Rico will receive financial assistance from [the Federal Emergency Management Agency] and other federal sources, the damage caused by Hurricane Maria will adversely affect the government’s already-fragile liquidity,” Eck said. He explained that tax collections are likely to decline and that the hurricane will encourage further emigration.

The U.S. government last year appointed an oversight board to take control of financial aspects of Puerto Rico’s government. In March the board passed a 10 year fiscal plan that requires extensive spending cuts and tax increases, particularly in the first few years, to address a structural deficit.

On Friday the board approved for Gov. Ricardo Rosselló to “reallocate” up to $1 billion of its budget for emergency funding to recover from the hurricane’s effects.

Assured didn’t respond to a request for a comment and NPFG declined to comment for this story.

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