March 20 Fitch Ratings on Wednesday cut its
rating on $10.6 billion of Puerto Rico general obligation bonds
to BBB-minus from BBB-plus, saying the U.S. commonwealth was
facing a large budget imbalance caused by a weak economy and
Fitch was the third major ratings group to cut the credit
ratings of Puerto Rico, a large borrower in America's $3.7
trillion municipal bond market, to near junk-bond status.
Standard & Poor's did so a week ago.
Moody's Investors Service reduced Puerto Rico's general
obligation rating rating by two notches to Baa3 in December.
Fitch said in a statement that it had a negative ratings
outlook for Puerto Rico, that the island's government will
likely fall short of structural budget balance in fiscal 2014,
and that its under funded pension system was nearly depleted.
"Despite aggressive cost cutting and other fiscal
restructuring measures over the past four years, economic
recovery and budget balance have proven elusive," the Fitch
Puerto Rico's current-year deficit is coming in well above
initial forecasts of $1.1 billion and budget-gap narrowing steps
being taken by the government will still leave an estimated $490
million shortfall, the Fitch analysts said.
"With only tepid growth in revenues anticipated and
additional spending pressure, the administration is also likely
to face a considerable budget gap for fiscal 2014," the analysts
In addition to commonwealth GO bonds affected by the
two-notch downgrade, Fitch said the cuts applied to $1.38
billion of Public Building Authority government facilities
revenue bonds, $658 million of Puerto Rico Aqueduct and Sewer
Authority (PRASA) commonwealth guaranty revenue bonds and $2.948
billion Employees Retirement System of the Commonwealth of
Puerto Rico pension funding bonds.
Puerto Rico's new governor, Alejandro Garcia Padilla, last
week described S&P's ratings downgrade as a "wake-up call" for
the island whose economy was stuck in recession for six years
and has only begun to show small, tentative signs of recovery.
Elected as a critic of government austerity, Padilla has yet
to present a budget for the fiscal year starting July 1 but is
expected to propose tax increases and spending curbs. Moody's
Investors Service last week said it may be fiscal 2016 before
the government can balance its annual budgets without borrowing.
The new government has also pledged to step-up tax
enforcement and has proposed pension reforms that would increase
retirement ages for government workers.
Top Puerto Rico finance officials, Government Development
Bank President Javier Ferrer, GDB board Chairman David Chafey
and Treasury Secretary Melba Acosta, were scheduled to meet
privately in New York on Friday with institutional investors.
Details of the meeting were not known.
Puerto Rico's $52 billion of tax-supported bonds are widely
held by mutual funds and other big U.S. investors very likely
worried by the flurry of ratings cuts and the prospect of the
island's debt being labeled non-investment grade by ratings
Puerto Rico already pays the highest interest rates of any
large issuer of tax-free debt.