NEW YORK - Moody’s Investors Service has placed the ratings of the Puerto Rico Sales Tax Financing Corporation’s outstanding senior and subordinated sales tax revenue bonds on review for possible downgrade.
Around $6.8 billion of senior debt, currently rated at Aa2, and $9.2 billion of subordinated debt, rated at A1, is affected by the rating review.
Moody’s said the bonds are on review due to the need for additional analysis prompted by the application of Moody’s revised US Public Finance Special Tax Methodology, published on March 27.
The credit rating agency said it expects to conduct “further analysis of expectations for future economic and revenue growth and debt service coverage” within the new methodology.
The Puerto Rico Sales Tax Financing Corporation last issued subordinate revenue bonds in November, in two series and two sub-series that totaled $780.4 million. The following month, the corporation issued senior revenue bonds in two series that totaled around $1.9 billion.
In its last report on the sales tax bonds, Moody’s listed as strengths a strong legal structure that separates Puerto Rico’s sales tax from the commonwealth’s general fund, a broad and diversified economic base, and substantial coverage by revenues for the bonds.
Challenges include unclear performance of the tax since it is relatively new, possible coverage decline if sales tax is less than expected, and possible changes to the sales tax by the legislature.
Standard & Poor’s and Fitch Ratings both rate the senior bonds at AA-minus and the subordinate bonds at A-plus, with stable outlooks.
The results of the analysis could cause rating changes on either or both of the liens, possibly of more than one notch, Moody’s said.
The review is expected to be completed within 90 days.