By Mark Felsenthal
WASHINGTON, Jan 22 (Reuters) - The White House is not considering a financial bailout for Puerto Rico, where chronic fiscal challenges have raised the specter of a Detroit-like bankruptcy, an Obama administration official said on Wednesday.
The island’s woes have led credit rating agencies to say they are considering labeling the U.S. territory’s general obligation debt as junk bonds.
Puerto Rico already pays the highest interest rates of any big municipal bond issuer.
“The President’s Task Force continues to partner with the Commonwealth to strengthen Puerto Rico’s economic outlook and to ensure that it is taking advantage of all existing federal resources available to the Commonwealth,” White House spokeswoman Katherine Vargas told Reuters in an email.
“There is no deep federal assistance being contemplated at this time,” she said.
Puerto Rico has raised taxes, reformed pension systems and cut staff in moves meant to counter chronic budget deficits and an economy in or near recession for eight years.
Puerto Rican fiscal reforms are aimed at keeping its investment-grade credit rating, which stands just a notch above junk-bond status by all three Wall Street credit rating agencies.
An administration official said Puerto Rice had made progress in addressing its fiscal situation and that any additional federal actions or direct assistance would require congressional authorization.
The territory has demonstrated the will to tackle some of its challenges, the official said.
The island’s bond prices took a hit last week when the Puerto Rico Supreme Court stopped reforms to a teacher pension system that were aimed at bolstering the commonwealth’s finances.
News reports have said owners of some of the island’s $70 billion of bonds were meeting to discuss Puerto Rico’s wobbly finances. A group of investors led by Morgan Stanley is exploring providing about $2 billion in financing to the island to strengthen its finances, the New York Times reported on Tuesday.
The government is planning a return to the municipal bond market by the end of February, as part of efforts to retain its investment-grade rating. Officials say the exact timing and size of the deal are still pending. They have said in the past they would try to raise between $500 million and $1.2 billion through bonds backed by the sales and use tax and sold through the Sales Tax Financing Corporation, known as Cofina.
Both Moody’s Investors Service and Fitch Ratings, which have warned of a potential downgrade of Puerto Rico general obligation and related credit to junk, have cited market access, as well as budget and economic performance as critical factors in retaining an investment-grade rating.