NEW YORK, Jan 24 - Standard & Poor's said it was putting
Puerto Rico's debt on watch for a possible downgrade on Friday,
the latest threat faced by the U.S. territory that has been
subject to significant financial stress due to heavy pension
obligations and a weak economy.
The move follows S&P's decision Friday to put the Government
Development Bank of Puerto Rico on watch "with negative
implications," increasing the chances of a downgrade. Puerto
Rico's general obligation and appropriation debt ratings are on
watch for a possible downgrade, along with several other
ratings, including the territory's employee retirement system.
The move reflects a view that the commonwealth has become
too reliant on its Government Development Bank, which could have
limited liquidity by its fiscal year-end of June 30, 2014.
S&P's rating for Puerto Rico is currently triple-B-minus,
the lowest possible investment-grade rating. Two other ratings
agencies, Fitch and Moody's, also already have the lowest
possible investment-grade rating for the island. Downgrades to
junk could trigger accelerated debt repayments and demands for
more collateral for interest-rate swap contracts. Because it is
not a U.S. state or municipality, but a territory, Puerto Rico
does not have the option to seek a debt restructuring under
bankruptcy protection, as the city of Detroit did last year.
In a statement, Government Development Bank for Puerto Rico
(GDB) interim President José Pagán Beauchamp said the GDB and
the commonwealth "are comfortable with current liquidity levels
and have a variety of options for raising additional liquidity,
including a planned return to the public debt markets in the
near term. S&P is correct in noting that Puerto Rico's
constitution guarantees the payment of GO debt, and Puerto Rico
will continue to do everything necessary to honor all of its
Puerto Rico, battling population decline, chronic recession
and perennial budget shortfalls, is under pressure to show it
can access the bond market after delaying a debt sale late last
year and promising to bring a deal to market by late February.
Puerto Rico has about $55 billion of tax-supported debt and
another $15 billion supported by other revenue streams, such as
water and power rates.