UPDATE 1-Puerto Rico pension changes are "credit positive" -Moody's

Wed May 15, 2013 1:46pm EDT

May 15 (Reuters) - Puerto Rico's recently enacted changes to a badly under funded pensions system for government workers is "credit positive" for the heavily indebted Caribbean island, Moody's Investors Service said on Wednesday.

Moody's, which rates Puerto Rico's debt at the lowest investment-grade level of Baa3, also said in a research note an expansion of a sales tax under consideration by legislators would be a "credit positive," if enacted, for both the commonwealth and its Puerto Rico Sales Tax Financing Authority.

Noting policymakers still needed to make changes at Puerto Rico's "strained retirement plan" for teachers, Moody's said, the reduced benefits and other reforms at the Employee Retirement System were "positive for the commonwealth, which faced rapidly approaching illiquidity of the retirement system without reforms."

Puerto Rico and one of its biggest debt issuers would benefit if legislators approve the sales-tax expansion contained in Governor Alejandro Garcia Padilla's proposed fiscal 2014 budget.

"If it passes, it will be positive for both the commonwealth and the Puerto Rico Sales Tax Financing Authority (known by its Spanish acronym COFINA), although uncertainty will remain regarding the forecasted incremental revenue to be raised," Moody's said.

Moody's also said the governor's $9.8 billion budget plan, which includes debt restructuring and deficit financing of $775 million, had elements that "may prove politically challenging, and what form the final budget will take after legislative debates is uncertain."

FILED UNDER: