S&P Global Ratings said it lowered its ratings on Puerto Rico Aqueduct & Sewer Authority's (PRASA) series 2008 and 2012 senior-lien revenue bonds two notches to CC from CCC-minus.
The outlook is negative.
At the same time, S&P lowered to D from CCC-minus the rating on PRASA's obligations that also carry a commonwealth of Puerto Rico guarantee, as well as those obligations that are commonwealth-supported. It removed the ratings from CreditWatch, where they were placed with negative implications on Aug. 18, 2015.
The agency said it views PRASA as a government-related entity of the commonwealth.
"The downgrade is based on our view that PRASA's role and link with the commonwealth and the commonwealth's financial distress have caused a weakening in PRASA's financial risk profile, as evidenced by its diminished liquidity and large accounts payable that by management's estimates will take more than one fiscal year to fully address," said S&P Global Ratings credit analyst Theodore Chapman.
Because of the commonwealth's ongoing financial distress and uncertainty regarding the resolution of that distress, and the difficulties PRASA faces by its association with the commonwealth, the authority has been unable since 2014 to execute a planned revenue bond sale, all while facing a large capital improvement plan driven mainly by unfunded regulatory mandates from the U.S. Environmental Protection Agency and the Puerto Rico Dept. of Health for the sanitary sewer and drinking water systems, respectively, S&P said. PRASA management and those environmental regulators recently reached agreements on extensions of some of the deadline-certain mandates, which could provide some measure of relief to the timing and magnitude of future capital investments.
