Standard & Poor’s Friday downgraded all of the Puerto Rico Highways and Transportation Authority’s debt, affecting more than $6.6 billion of outstanding bonds. The outlook is stable.
Standard & Poor’s dropped the authority’s highway revenue bonds to BBB-plus from A-minus, according to the Government Development Bank for Puerto Rico, the island’s fiscal agent. Those outstanding bonds total $1.7 billion as of Feb. 1, 2007, according to the agency’s last official statement for its Series 2007M and Series 2007N bonds.
In addition, Standard & Poor’s downgraded $4.1 billion of senior transportation revenue bonds to BBB from BBB-plus and dropped $791.9 million of subordinate highway bonds to BBB-minus from BBB.
The GDB announced the rating changes before Standard & Poor’s released its reasoning for the downgrades. According to the bank, Standard & Poor’s cited an imbalance of expenditures compared to revenue and reliance upon the GDB for cash flows.
“The main reason Standard & Poor’s downgraded these bonds is the increase in operational costs versus the slow growth in revenues,” the bank said a press release. “In addition, PRHTA depends on interim lines of credit that have been provided by GDB.”
This is the second downgrade of a Puerto Rico bonding authority this week. Standard & Poor’s downgraded to BBB-minus from A-minus $58.5 million of Puerto Rico Port Authority debt issued for the island’s international airport in San Juan. That rating change was due to weak financial performance and borrowing money from the GDB and other banks to help meet debt service costs.
GDB president Carlos Garcia said that the commonwealth must address the island’s fiscal challenges.
“It’s worrisome that two public corporations have received a credit downgrading in less than a week: the Ports Authority on Wednesday, and Highways and Transportation [Friday],” Garcia said in the press release. “Standard and Poor’s actions are a forceful sign that the credit rating agencies will continue watching with a stern eye the steps that this government takes in relation to its fiscal matters. It is imperative for the government to immediately take all the measures necessary to control and stabilize the fiscal situation of both the commonwealth of Puerto Rico and PRHTA.”