Fitch Downgrades Puerto Rico General Obligation Bonds
By Maria Armental
Fitch Ratings on Wednesday cut the rating of Puerto Rico's general-obligation bonds one notch, deeper into junk territory, citing the country's outstanding debt and unfunded pensions.
The downgrade follows earlier rating cuts from Moody's Investors Service and Standard & Poor's tied to the commonwealth's new law to overhaul other public debt. The law, signed by Gov. Alejandro Garcia Padilla, allows some agencies, such as the island's power, water and transportation authorities, to restructure their debt.
Those agencies have a combined $19.4 billion outstanding, according to estimates from Barclays PLC.
The law doesn't apply to Puerto Rico's general-obligation or sales-tax debt.
While intended to restore solvency over the long-term, Fitch said Wednesday, the restructuring as outlined in the law "would trigger suspension of debt payments and preclude the timely payment of principal and interest" while proceedings are pending.
Fitch lowered the commonwealth's general-obligation bonds and general obligation-guaranteed debt to double-B-minus, three notches below investment grade, citing mixed economic signs including accelerated year-over-year drops in the labor force that have accelerated in recent months and persistent year-over-year declines in the Government Development Bank's monthly economic activity index.
The rating agency also cut its rating on the commonwealth's sales tax entity, known by its Spanish acronym Cofina, pension funding bonds and Public Building Authority government facilities revenue bonds guaranteed by the commonwealth to double-B-minus, and cut about $3.4 billion in debt from the Puerto Rico Aqueduct & Sewer Authority to B-plus.
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