(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
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)