Saturday, June 28, 2014
Puerto Rico on CreditWatch Negative From S&P on Debt Bill
Puerto Rico may see its credit rating, already in the speculative range, lowered even more because of legislation to allow some public corporations to restructure their debt, Standard & Poor’s said.
The company said it put the commonwealth’s general-obligation bond rating on CreditWatch with negative implications, meaning it could be lowered within 60 to 90 days if Governor Alejandro Garcia Padilla signs the bill into law.
The proposal, sought by Padilla and passed by lawmakers June 25, would allow public utilities such as Puerto Rico Electric Power Authority to negotiate with bondholders to reduce their debt loads. Prepa, struggling with $10 billion of debt, is seeking to extend lines of credit with banks and could be one of the first borrowers to rely on the plan.
Padilla’s proposal “is indicative of the growing economic and fiscal challenges for the commonwealth as a whole, which could lead to additional liquidity pressures,” S&P analyst David Hitchcock said in a statement.
The legislation may also signal “a potential shift in the commonwealth’s historically strong willingness to continue to meet its obligations to bondholders,” Hitchcock said in a report. The legislation excludes general-obligation bonds.
S&P, along with Moody’s Investors Service and Fitch Ratings, cut the commonwealth’s general-obligation bonds to speculative grade beginning in February and followed with similar downgrades to its utilities.
Investors have been anticipating a potential debt restructuring since August on concern that the island of 3.6 million people would be unable to repay its obligations. Its unemployment rate of 13.8 percent is more than double the U.S. average.
To contact the reporters on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net; Michelle Kaske in New York at mkaske@bloomberg.net
To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Pete Young, Sylvia Wier
By Michael B. Marois and Michelle Kaske
Puerto Rico on CreditWatch Negative From S&P on Debt Bill
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