SAN JUAN Dec 13 Moody's Investors Service on
Thursday slashed Puerto Rico's credit rating by two notches to
Baa3 from Baa1 with a negative outlook.
The decision, which affects $38 billion of outstanding debt,
is linked to the U.S. commonwealth's weak economic outlook, its
high - and growing - level of debt, the lack of meaningful
pension reforms and a weak financial performance, the credit
ratings agency said.
The downgrade left Puerto Rico's GO rating a single level
above non-investment grade, or junk, which is where it was in
At the same time, Moody's lowered the bonds of Puerto Rico's
Public Finance Corporation, its Aqueduct & Sewer Authority and
certain Highways & Transportation Authority bonds to Ba1, the
highest non-investment-grade, or junk, rating.
The downgrade comes as the U.S. $3.7 trillion municipal bond
market sizes up the incoming administration of Governor-Elect
Alejandro Garcia Padilla, who ousted Republican Governor Luis
Fortuno in a close election last month.
Fortuno was seen as a pro-business reformer whose painful
economic initiatives seemed to be starting to bear fruit.
Puerto Rico's 30-year yield spread over top-rated bonds on
the municipal market traded at 248 basis points last Friday, a
record high for 2012, according to Municipal Market Data.
The announcement came first from Juan Carlos Battle, the
president of the Government Development Bank, which acts as
Puerto Rico's financial adviser.
"We are not pleased by the action taken by Moody's today and
we are in disagreement that they did not give time to the
incoming administration to present its fiscal team and work plan
to address these issues," Battle said.
"We also disagree with the interpretation of many of the
aspects of the government's present fiscal situation."