NEW YORK Jan. 24, 2014--Standard & Poor's Ratings Services has placed its general obligation (GO) 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 Puerto Rico's Employee Retirement System, the Puerto Rico Infrastructure Financing Authority, the Puerto Rico Convention Center District Authority, and the Puerto Rico Highways and Transportation Authority on CreditWatch with negative implications. We have not taken a rating action on sales tax-secured debt of the Puerto Rico Sales Tax Financing Corp. (COFINA).
"These CreditWatch actions follow our placement of the Government Development Bank for Puerto Rico issuer credit rating on CreditWatch with negative implications (see the research report published Jan. 24, 2014, on RatingsDirect), and our view that GDB's ability to provide liquidity for Puerto Rico is weakened," said Standard & Poor's credit analyst David Hitchcock.
The associated CreditWatch action on the various public agencies' revenue bonds reflects our opinion that in certain circumstances their revenues could be diverted in favor of GO debt under the Puerto Rico constitution.
We believe that the commonwealth relies heavily on Government Development Bank (GDB) of Puerto Rico for its liquidity needs. In our opinion, GDB's ability to provide liquidity to the commonwealth has become constrained. In our view, GDB could have limited liquidity by fiscal year-end June 30, 2014 without access to the debt market by either GDB or the commonwealth. While we believe the commonwealth may place a sizable sales tax-secured bond issue through COFINA, in our opinion, current market conditions for Puerto Rico debt issuances will require relatively high yields and a limited pool of specialized buyers.
The negative CreditWatch placement on Puerto Rico reflects our negative CreditWatch on the GDB. Should we downgrade the GDB, we could lower the rating on Puerto Rico's GO and appropriation debt.
