(Adds Fitch decision, explains bank lines of credit)
WASHINGTON, June 18 Standard & Poor's Ratings Services cut its rating on Puerto Rico Electric Power Authority's (PREPA) revenue bonds to BBB- from BBB on Wednesday, becoming the second credit rating agency in the past week to raise concerns about the authority's liquidity.
PREPA has $8.6 billion of power revenue bonds outstanding, according to S&P.
Fitch Ratings cut its rating last week on the debt of the PREPA, a self-funded utility enterprise, to BB from BB-plus partly because of uncertainty that Puerto Rico's Government Development Bank would help the power authority if it needed liquidity.
Some of the power authority's bank lines of credit are expiring, and PREPA may have to turn to the Government Development Bank for liquidity if the authority fails to secure an extension of those credit lines.
"(There is a) risk that the GDB will not provide interim liquidity if PREPA does not renew its lines of credit, which it uses to purchase oil," Standard & Poor's credit analyst Judith Waite said in a statement. (bit.ly/1nPxDQJ)
S&P also placed the power authority's rating on CreditWatch with negative implications, pending the outcome of negotiations to extend the credit lines. It expects to resolve the CreditWatch "within the next few weeks," S&P said.
PREPA is negotiating an extension of Citibank's $250 million line of credit that matured in January. The bank wants to cut the line to $150 million and will not sign off on an extension until it sees the power authority's long-term plan, based on a budget due June 30.
The power authority could begin repaying $146 million in debt to Citibank on July 3, and "does not currently have the cash to pay the full amount," according to S&P.
Likewise, ScotiaBank de Puerto Rico will not renew a $550 million line of credit maturing in August until it sees the long-term plan. Without the renewal, PREPA will owe the bank $525 million, S&P said.
Fitch said the U.S. territory is suffering a major population decline and an economic downturn, both of which contributed to the power authority's energy sales falling 3.7 percent during the first 10 months of the fiscal year.
Last month, Puerto Rico Governor Alejandro Garcia Padilla signed a law to lower PREPA's prices, stabilize rates and embrace renewable energy.
Still, S&P said that if PREPA does not have liquidity, it will not be able to operate power plants, and the agency will cut its rating further.
"Our rating has always taken into account the fact that PREPA's high rates, due to the high cost of oil, preclude their ability to build up a strong level of liquidity, obliging them to rely on either the GDB or outside lenders," S&P said.
Yields on the $3.5 billion of junk bonds that Puerto Rico sold in March hit 9.401 percent on Wednesday, edging close to their record high of 9.425 percent reached on April 14. Yields move inversely to price, indicating that the debt, which comes with an 8 percent coupon, is now as cheap as it was in April. (Reporting by Lisa Lambert in Washington; Additional reporting by Kanika Sikka in Bangalore; Editing by Jan Paschal)