(Adds details on report, background on rating and Puerto Rico,
WASHINGTON, June 11 Fitch Ratings downgraded its
rating on the Puerto Rico Electric Power Authority for the
second time in less than six months on Wednesday, citing cash
problems, shaky short-term borrowing and weak financial
Fitch said it cut its rating to BB from BB-plus and put it
on negative rating watch.
The rating cut on $8.7 billion of power revenue bonds
reflects "heightened concerns about PREPA's ability to manage
near-term liquidity demands brought on by maturing bank lines of
credit and the required repayment of outstanding loans due in
July and August," the agency said.
The downgrade puts the authority's credit rating closer in
line with Puerto Rico's junk credit score.
Because PREPA operates as a self-funded utility enterprise,
Fitch said it has not strictly linked the authority's
rating with that of the commonwealth's. "However, given the
possibility of greater reliance on support from the commonwealth
and GDB the ratings are being appropriately aligned," Fitch said
in a statement.
The GDB, or Government Development Bank, could have to
provide liquidity if the cash-strapped authority is unable to
extend or replace its maturing lines of credit. PREPA has more
than $670 million in debt coming due in July and August,
according to Fitch.
The territory is suffering through major population and
economic downturns, both of which contributed to PREPA's energy
sales falling by 3.7 percent during the first 10 months of the
fiscal year, Fitch said.
Last month, Puerto Rico Governor Alejandro Garcia Padilla
signed a law to lower PREPA's prices, stabilize rates, embrace
renewable energy and promote efficiency. His office called it
"the most profound transformation of Puerto Rico's electricity
production since 1941." The law also initiated a review of
PREPA's electricity tariff.
In March the commonwealth brought the largest junk municipal
bond sale ever to market, which Fitch said would improve the
GDB's liquidity. Nonetheless, all three Wall Street rating
agencies are keeping close tabs on a territory swarmed by
Yields on those junk bonds, which come with a substantial 8
percent coupon, fell on Wednesday to 9 percent.
In February Fitch knocked the rating on PREPA's revenue
bonds from BBB-minus. That same month, Moody's Investors Service
cut PREPA's rating to Ba2 from Baa3, two notches below
(Reporting by Lisa Lambert; Additional reporting by Bangalore
Newsroom; Editing by Leslie Adler)