Fitch Ratings downgraded the issuer default rating of Genera PR, the power generating company for the Puerto Rico Electric Power Authority, to CCC from B-minus Thursday.
Fitch's action followed S&P Global Ratings downgrade of Genera PR's strongest debt to B-minus from B on Wednesday.
Both downgrades were to New Fortress Energy, the parent company to Genera PR. S&P has a negative outlook on its rating.
As part of its downgrade, Fitch downgraded NFE's $2.7 billion 12% senior secured notes due 2029 and term loan B to CCC from B-minus. Fitch gives them a recovery rating of RR4, which historically have been associated with a 31% to 50% recovery in cases of default, Fitch said. Fitch also downgraded the 6.5% senior secured notes due September 2026 and the 8.75% senior secured notes due March 2029 to CCC-minus from CCC-plus and gave them a recovery rating of RR5.
According to an April study by S&P, its CCC and C rated United States corporate entities had a 26% average rate of default within one year from 1981 to 2024 and a 51% average rate of default within five years in that period.
Puerto Rico Gov. Jenniffer González Colón has talked in recent months about cancelling PREPA's contracts with Genera and LUMA, a private entity providing transmission and distribution services on the island. She and others have been concerned about the frequency of blackouts.
Last week the Puerto Rico Public Private Partnership Authority announced that it had selected two private firms for a short list of firms that may provide additional emergency generation capacity on the island. The PPPA didn't name NFE as one of the companies even though NFE had applied.
New Fortress Energy sent a letter to the governor about this and filed a formal protest. Mudd said if NFE goes bankrupt, "Any lawsuit by NFE against PREPA for not letting it bid on a certain contract will be in bankruptcy court."
Former British Prime Minister "Winston Churchill once said that the Soviet Union was a riddle wrapped in a mystery inside an enigma," said Vicente Feliciano, president and CEO of Advantage Business Consulting, a business and economic consulting firm on Puerto Rico.
"The PREPA bond saga starts to take a similar shape," he said. "It could become the New Fortress Energy bankruptcy, resulting in the Genera bankruptcy, inside the PREPA bankruptcy nested within the Puerto Rico government bankruptcy. Untangling this is a challenge."
In December the Puerto Rico Oversight Board said it was monitoring NFE's financial status and would work with PREPA to avoid disruption in power service if New Fortress were to file for bankruptcy.
The Puerto Rico Public Private Partnership Authority
Moody's Ratings also rates NFE but the rating couldn't be immediately ascertained. NFE didn't immediately respond to a request for a comment.
