Moody's Puts Puerto Rico’s Sales Tax Bonds on Downgrade Review

Moody’s Investors Service has placed the ratings of the Puerto Rico Sales Tax Financing Corp.’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 analysts said the bonds are on review due to the need for additional analysis prompted by the application of Moody’s revised “U.S. Public Finance Special Tax Methodology,” which was 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 Corp. last issued subordinate revenue bonds in November, in two series and two subseries 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 revenue coverage for the bonds.

Among the challenges are unclear performance of the tax since it is relatively new, possible coverage decline if the sales tax is less than expected, and possible changes to the sales tax by Puerto Rico lawmakers.

Standard & Poor’s and Fitch Ratings analysts 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.

For reprint and licensing requests for this article, click here.
Puerto Rico
MORE FROM BOND BUYER