Puerto Rico Electric Power Authority made a key bond payment of $418 million to avert what would have been a record default for the muni market.
Earlier, Moody's Investors Service's issued a series of sharp downgrades to Puerto Rico debt, including a five notch cut to PREPA's power revenue bonds to Caa2 from Ba3. On Thursday Fitch Ratings had downgraded the bonds to CC from BB and said a default was "probable." A CC rating is equivalent to two notches lower than Caa2.
On Friday Standard & Poor's downgraded the PREPA bonds to BB from BBB-minus.
All three agencies have the authority on review for possible further downgrades.
Even the government has cited the authority's financial problems as one cause for its recent filing and adoption of a public corporation restructuring law.
On Monday, Puerto Rico released the audited basic financial statement for fiscal 2013, the fiscal year that ended June 30, 2013. As part of this, its KPMG said PREPA "has had material recurring operating deficits, currently has a high level of debt and faces large non-discretionary capital expenditure requirements, while facing a decline in demand for electricity. PREPA currently faces heightened liquidity and market access risk as a result of the maturity in July and August 2014 of two short-term lines of credit in an aggregate principal amount of $671 million. PREPA's management is currently negotiating the renewal of these lines of credit with the corresponding commercial banks. PREPA's ability to repay its outstanding lines of credit is limited and its ability to extend, renew or replace these lines of credit is uncertain. This raises substantial doubt about its ability to continue as a going concern."
After Fitch downgraded PREPA to BB from BB-plus on June 11, PREPA executive director Juan Alicea Flores said PREPA was evaluating the options available for renewing credit lines, with the assistance of the Government Development Bank of Puerto Rico. It was also looking into mean to have the cash flow that allows the public corporation meet its financial commitments.
"We are working with our strategic plan and directing all our efforts on revenue recovery and cost control, in order to maintain healthy liquidity in our finances, which will lead us to a sound financial position and advance our projects, system improvements and diversification to natural gas," he added.
Alicea Flores said that for fiscal year 2015 PREPA had identified $170 million in administrative savings and continued to evaluate measures, processes, and internal controls designed to increase the efficiency of operations, meet financial stability, income levels and financial stability of the public corporation.
PREPA did not immediately comment on Moody's action on Tuesday.
