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University of Puerto Rico likely headed toward first credit default: S&P
November 13, 2015 / 10:46 PM / 2 years ago

University of Puerto Rico likely headed toward first credit default: S&P

SAN FRANCISCO, Nov 13 (Reuters) - The University of Puerto Rico is unlikely to make the $11.3 million debt payment due on Dec. 1, a credit analyst told Reuters this week, the latest manifestation of economic peril gripping the U.S. territory.

S&P expects with “virtual certainty” that the university will fail to make the payment, which would mark the first time a U.S. public university rated by S&P defaulted on a payment, said Bianca Gaytan, a director at the ratings agency.

“We’re in uncharted territory,” she said.

A University of Puerto Rico spokesperson could not be reached for comment.

If the university fails to make the payment, its credit rating will drop from its current CC rating with a negative outlook to D, which would signal to the market that it had failed to meet a financial obligation.

From 1986 to 2014, just two rated U.S. private universities have defaulted - Bradford College in 2000 and Thomas Jefferson School of Law in 2014, Gaytan said.

That could be just the start of defaults for the university, which also has a principal payment of $19.97 million due on June 1 along with another $11.3 million interest payment.

The university’s economic struggles are tied closely to the struggles of the commonwealth as a whole. Moody’s Investor Services said on Wednesday that Puerto Rico is likely to default on at least some of its $355 million in debt payments on Dec. 1 due to liquidity pressures.

The university receives 68 percent of its revenues from the Commonwealth, a much higher percentage than what most public U.S. universities on the mainland receive.

“As the Commonwealth goes, so goes the fiscal health of the university,” Gaytan said.

Natalie Cohen, a director at Wells Fargo Securities, said the university should capitalize on the increase in the number of Spanish speaking people in the U.S. mainland looking for a quality education.

Those students would pay more in tuition, helping to improve the university’s financial position, she said.

“A strong education system is key to economic development and there are many creative ideas that could reinforce their programs,” including endowments and special types of scholarships, she said. (Reporting by Rory Carroll; Editing by Diane Craft)

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