Puerto Rico yesterday entered the single-A category as Moody’s Investors Service released its recalibrated A3 rating with a stable outlook for the commonwealth’s general obligation debt. The prior rating was Baa3 with a stable outlook.
Moody’s is currently looking at all of the municipal credits that it rates to evaluate them as it would all debt. Puerto Rico’s global scale rating of A3 is three notches above its municipal-scale rating of Baa3.
The commonwealth has $9 billion of outstanding GO bonds.
“We looked at the commonalities and we decided first and foremost, based on our default study, that general obligation bonds do not default at the same rate that other bonds do,” said Moody’s analyst Edith Behr.
“And so it was appropriate to move them up more than other types of credits and when we benchmarked Baa3 general obligation bonds against our other lines of business, we thought the risk profile was more similar to the global scale rating, in this case, of A3.”
Puerto Rico officials have been pushing for a boost to the GO rating in light of fiscal reforms that lawmakers have put in place. The aim is to end structural imbalances by fiscal 2013.
“I think it is very positive news for Puerto Rico and for its investors by recognizing that comparative difference,” said Carlos Garcia, president of the Government Development Bank for Puerto Rico, which accesses the municipal market for the commonwealth.
“And it will certainly have a factor in the future in possibly providing a lower cost of interest and also to broaden the investors that will continue to participate and support Puerto Rico,” he said.
While Fitch Ratings does not rate Puerto Rico’s GO bonds, on April 5 it released a recalibrated rating of BBB-plus on Puerto Rico Aqueduct and Sewer Authority bonds that are secured with the commonwealth’s guarantee.
The outlook is stable; the previous rating was BBB-minus. The rating change affects Series 2008A and Series 2008B revenue refunding bonds.
Standard & Poor’s rates Puerto Rico BBB-minus with a stable outlook. The agency has not announced any plans to recalibrate its ratings, and has said that it already rates its public finance debt on a uniform rating scale across all major credit sectors.
Puerto Rico officials in late February announced their goal of raising the GO rating by one notch by early 2011. Moody’s A3 global rating for the credit surpasses that target, though Standard & Poor’s rating remains BBB-minus.
In looking at fiscal 2011, which begins July 1, Garcia said Gov. Luis Fortuño will deliver his budget address by the end of this month. A date has not been announced yet.
The GDB on Friday released the commonwealth’s fiscal 2010 revenue performance through February.
Total year-to-date revenues of $4.47 billion are $8 million below budgeted estimates.
“We are still at striking distance on the revenue projections,” Garcia said.
While business tax revenue and non-resident withholdings from July through February are $25 million and $58 million, respectively — above earlier projections — sales tax receipts and personal income tax revenue are below budget targets.
Sales tax revenue is $66 million below budget estimates, while individual income tax revenue is $28 million below earlier projections.
Year-to-date revenue collections are $318 million below what the government received during the same time in fiscal 2009. That difference includes new property tax revenue of $128 million as officials implemented the tax in fiscal 2010.
In addition, the general fund received $365 million less of the sales tax revenue collected in the first eight months of fiscal 2010 than in 2009 as a greater percentage of that revenue stream now goes towards paying down outstanding sales tax bonds.