Feb 28 Moody's Investors Service on Friday
assigned a provisional rating of Ba2 to Puerto Rico's planned
issuance of up to $3.5 billion general obligation bonds, saying
it expects the U.S. territory to raise sufficient funds to
sustain it through 2015.
The cash-strapped island plans to return to the bond market
in the coming weeks for the first time since Moody's and two
other Wall Street rating agencies cut its credit to junk status.
Puerto Rico has not issued bonds of any kind since August.
Analysts at the agency said the bonds would allow Puerto
Rico to repay internal loans from the Government Development
Bank, refinance variable rate obligations and terminate costly
interest rate swap contracts.
The rating, two notches below investment grade, "reflects
our belief that the commonwealth will raise enough cash in the
upcoming financing to enable it to maintain an adequate
liquidity profile through the end of 2015," Moody's said.
However, Moody's stressed that the rating was preliminary
and could change, pointing out that the legislation authorizing
the sale includes "atypical terms and conditions."
One is likely to be the provision that New York legal
jurisdiction will apply should litigation become necessary, the
agency said, while other conditions remain unclear.
Issuing a preliminary public finance rating before all terms
are known is unusual, and a Moody's spokesman said it was
assigned at Puerto Rico's request.
Puerto Rico's government has said it intends to raise about
$2.86 billion in the sale, which many in the $3.7 trillion
municipal bond market see as a test of the island's ability to
continue financing its large budget deficit. Hedge funds are
expected to be the biggest buyers.
The island already has outstanding debt of about $70 billion
and pays by far the highest tax-free rates of any big municipal
bond seller. Its economy is in a nearly unbroken eight-year
recession, which has fueled population losses and high
Moody's applauded the government's "notable steps to rein in
debt and spending, to reform retirement systems and to promote
But the agency maintained a negative outlook on the bonds,
which it said reflects liquidity pressure, high deficits,
pension underfunding and uncertainty in Puerto Rico's economic
Puerto Rico's Senate on Thursday approved a bill authorizing
a bond issue of up to $3.5 billion. The lower house of the
legislature is slated to vote on Monday.