Emily Raimes, Vice President at Moody's Investors Service, sits down with The Bond Buyer's Chip Barnett to talk about what's happening in Puerto Rico. She discusses the present situation, takes a look at what's next, explains what could cause a rating change and talks about any possible role for the U.S. federal government in helping the Commonwealth.

BARNETT: Hi. I'm Chip Barnett for the Bond Buyer. I'm here today with Emily Raimes from Moody's Investor Service, and we're going to talk about Puerto Rico. Welcome. Emily, what's the Moody view of the current situation in Puerto Rico? What's been happening down there? What's going on?

RAIMES: Well, obviously, the big story this week has been the first missed debt service payment. Not entirely unexpected, I think there had been advance notice that the trustee hadn't received the appropriation and so this wasn't entirely unexpected. We think this is the first in what could be more widespread defaults. On other pieces of the Commonwealth, their finances continue to be extremely weak. Their latest economic numbers continue to show declines on a month-over-month and year-over-year basis.

In terms of the finances, the economy, it's the same story that we've been seeing; which is, very severe physical stress and a very weak economy. The near term changes are all around potential non-payment of debt service as the island struggles with the decision to make payments for core services or for debt service.

BARNETT: Well, I guess what everybody wants to know too is what's next for Puerto Rico? What's going to happen to the island?

RAIMES: Yes. There are a few things that are coming in the coming months. The island has announced that they will be presenting a kind of a restructuring plan in September, so we'll be watching to see that. See what that has in it that may give us some indication of some plan for recovery rates on the various types of structures and securities that are out there. We'll of course also be watching their liquidity. They've been looking to access the market over the past year and a half. So far they've been unable to.

They are still talking about potential plans for some borrowing. Their market access appears really non existent at this point, but we'll certainly be watching to see if they can do that. And without that, I think that there will be increasing liquidity pressure and we'll be watching to see what types of decisions they are making as the months go by and large debt service payments are coming due from GDB, from the general obligation debt and more. As you know, this week they did not make the set aside payment for general obligation debt which is a reflection of their very weak liquidity at this time.

BARNETT: What developments would merit a rating change?

RAIMES: Well, at this point our ratings are clustered at CAA3 and CA, which speak to our expected recovery levels on the different bond securities. These are very rough estimates. We have not a lot of information to go on to base real forecast of what recoveries will be and as we get more information, that's something that could be influencing the ratings.

BARNETT: Do you see a role for the federal government in Puerto Rico? I mean a bail out looks like it's off the table, but do you see anything like a maybe what New York City had with their municipal systems cooperation. A role for the federal government in Puerto Rico?

RAIMES: Yes. I mean we don't factor any type of federal assistance or bail out into the ratings. We haven't seen the federal government do anything like that with municipalities, commonwealth states in the past. We don't think it would be likely that they would do that. In terms of other assistance the federal system could provide, there are certainly things that the federal government could do. Most would take some congressional action and we think are pretty unlikely at this point.