Standard & Poor's Ratings Services said it has placed its general obligation and appropriation debt ratings on the commonwealth of Puerto Rico on CreditWatch with negative implications.
Standard & Poor's has also placed its debt ratings on the Puerto Rico Employee Retirement System, the Puerto Rico Infrastructure Financing Authority, the Puerto Rico Convention Center District Authority, the Puerto Rico Highways and Transportation Authority, and the Puerto Rico Sales Tax Financing Corp. (COFINA) on CreditWatch with negative implications.
These CreditWatch actions follow the introduction of legislation that would enable the restructuring of debt issued by the commonwealth's public corporations (the "Puerto Rico Public Corporation Debt Enforcement and Recovery Act").
The bill specifically excludes from its scope the GO debt of the commonwealth and any debt guaranteed by the commonwealth; the 78 municipalities of the commonwealth; the Government Development Bank and its subsidiaries; the Employees Retirement System; the Judiciary Retirement System; the Municipal Finance Agency; the Municipal Finance Corp.; the Puerto Rico Industrial Development Co.; the Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority; the Puerto Rico Infrastructure Financing Authority; the Puerto Rico Sales Tax Financing Corp.; the Teachers Retirement System; and the University of Puerto Rico.
"We recognize that the specific exclusion of the above-mentioned entities from the bill could potentially limit the demand for liquidity and budgetary support from the commonwealth and the Government Development Bank to the public corporations," said Standard & Poor's credit analyst David Hitchcock. "However, we believe that the introduction of the bill by Governor Alejandro Garcia Padilla and its approval by the legislature is indicative of the growing economic and fiscal challenges for the commonwealth as a whole, which could lead to additional liquidity pressures in the long term and a potential shift in the commonwealth's historically strong willingness to continue to meet its obligations to bondholders," added Hitchcock.
The negative CreditWatch placement indicates that the agency could lower the ratings within the next 60 to 90 days pending an eventual signing of the approved bill into law and its evaluation of the potential impact on the various ratings included in this action.
In the event of a negative rating action, the ratings on the Highways and Transportation Authority and COFINA debt could potentially experience a larger downgrade than that of the commonwealth's GO debt. The new law could allow for the restructuring of the Highways Authority debt, and, the willingness to adjust the statutory debt structure raises the risk that COFINA's sales tax security pledge may not be separated from the commonwealth's finances in the future.
