Fitch Ratings said it has downgraded the ratings for the commonwealth of Puerto Rico general obligation bonds to BB from BBB-minus.
Fitch also downgraded to BB from BBB-minus: Puerto Rico Public Building Authority government facilities revenue bonds guaranteed by the commonwealth; Puerto Rico Aqueduct and Sewer Authority (PRASA) commonwealth guaranty revenue bonds; Employees Retirement System of the Commonwealth of Puerto Rico pension funding bonds.
The ratings have been removed from Rating Watch Negative; however, the Rating Outlook, which indicates the direction the ratings are likely to move over a one- to two-year period, is negative.
The current action does not affect the ratings that Fitch assigns to bonds issued by the Puerto Rico Sales Tax Financing Corporation (COFINA). Those bonds are secured by the commonwealth's sales and use tax and insulated from the commonwealth's general credit strain. Their ratings are driven by economic and revenue performance.
Fitch placed the GO and related ratings on Negative Watch in November 2013, citing the challenge facing the commonwealth in maintaining financial flexibility in light of the deterioration in capital markets access. Recent downgrades have triggered new liquidity requirements and lowered expectations for the market available for the commonwealth's debt going forward, though there have been no significant negative developments regarding the commonwealth's finances or economy since November. In the context of other credit challenges related to a weak economy and elevated liability levels, Fitch believes that these additional hurdles preclude the commonwealth maintaining an investment-grade credit profile.
The commonwealth's management has responded quickly and decisively to challenges that have arisen in recent years and the current administration has made significant progress in addressing longstanding credit issues. Fitch believes the commitment of management to achieving fiscal balance and honoring commitments to bondholders remains strong, and the governor recently announced a plan to balance the budget next year, one year earlier than previously expected.
