Standard & Poor's Ratings Services said it has revised its outlook on the Puerto Rico Municipal Finance Agency's bonds outstanding to negative from stable and affirmed its BBB-minus rating.
"The outlook revision is based on our assessment of the pledged revenues securing the bonds, including revenue derived from the commonwealth's pledge to appropriate funds for the repayment of debt service," said Standard & Poor's credit analyst Horacio Aldrete-Sanchez. MFA has approximately $1.1 billion in bonds outstanding.
The ratings reflect the following credit strengths: a several obligation of participating municipalities, secured by a dedicated unlimited property tax levied by each municipality sufficient to cover the debt service on outstanding and proposed debt. Also pledged is a first lien on the basic property tax levied by municipalities, which management represents has never been tapped to pay debt service; commonwealth appropriations of matching equalization funds, which historically have made up approximately 33% of total revenue dedicated to the payment of MFA debt service; a moral obligation pledge by the commonwealth to replenish the debt service reserve account, should any of the preceding sources prove insufficient to cover debt service; and strong oversight by Government Development Bank for Puerto Rico and strong coverage of 5.63x, based on the combination of special additional property tax, basic property tax, the municipal redemption fund balance, and commonwealth matching fund appropriations.
Limiting factors include: the presence of economically shallow participating municipalities whose individual tax bases may exhibit vulnerability during economic cycles; and the vulnerability of matching fund revenues, the appropriation of which could be affected by a downturn in the collection of the commonwealth's general revenues.
The negative outlook is based on the pledged revenue securing the bonds, which include appropriations from Puerto Rico. While revenue from local property tax collections has produced adequate coverage of annual debt service, the negative outlook reflects the maintenance of coverage levels consistent with historical levels requires the inclusion of appropriations from the commonwealth. S&P could revise the outlook stable if MFA maintains coverage and the outlook on the commonwealth appropriation rating is revised to stable from negative.