Moody's cuts Puerto Rico to junk

NEW YORK Fri Feb 7, 2014 3:36pm EST

A government service center located in the former Westernbank building in the Hato Rey financial district, remains nearly empty after the government took it over when it closed the bank due to its high exposure to toxic loans, according to a report by Puerto Rico�s Inspector General in 2010, in San Juan February 5, 2014. REUTERS/Ana Martinez

A government service center located in the former Westernbank building in the Hato Rey financial district, remains nearly empty after the government took it over when it closed the bank due to its high exposure to toxic loans, according to a report by Puerto Rico�s Inspector General in 2010, in San Juan February 5, 2014.

Credit: Reuters/Ana Martinez

NEW YORK (Reuters) - Moody's on Friday cut Puerto Rico's credit rating to junk status, citing concerns about the fiscally challenged U.S. territory's weak growth and ability to access capital markets.

Moody's, which placed Puerto Rico's rating on notice for a downgrade late last year, said it now rates the commonwealth's general obligation bonds at Ba2, two notches below investment grade status.

With some $70 billion of tax-free debt, Puerto Rico has long struggled with recession and has for months been under threat of a ratings downgrade to junk-bond territory by all three U.S. credit ratings agencies. Standard & Poor's cut the island's rating to junk on Tuesday.

Moody's said Puerto Rico's economic malaise, underfunded pension obligations and high deficit "have now put the commonwealth in a position where its debt load and fixed costs are high, its liquidity is narrow, and its market access has become constrained."

Moody's also cut its ratings on the island's sales-tax supported senior lien COFINA bonds to Baa1 from A2.

(Reporting By Steven C. Johnson; Editing by Chizu Nomiyama)