By Michael Connor
July 19 Puerto Rico wants Moody's Investor
Service to revisit a ratings downgrade of $16 billion of sales
tax debt, saying the Wall Street credit ratings agency was
ignoring an upturn in the Caribbean island's long-moribund
Top Puerto Rico government officials said Moody's ratings
cuts on Wednesday of outstanding Puerto Rico Sales Tax Financing
Corp debt needed to be reconsidered by the credit-ratings group.
Moody's said the island's weak economy will generate
softer-than-expected sales tax revenue that backs payments of
the sales tax revenue bonds.
Moody's cut Puerto Rico Sales Tax Financing Corp's senior
sales tax revenue bonds by one notch to Aa3 from Aa2 and its
subordinate bonds by two notches to A3 from A1.
Ratings downgrades typically raise future borrowing costs
for issuers and often hurt prices of outstanding bonds. A big
issuer of bonds in the $3.7 trillion U.S. municipal bond market,
Puerto Rico has about $68 billion of tax-free bonds outstanding.
It pays the highest yields among big municipal borrowers.
"We completely disagree with this rating action," said Juan
Carlos Pavia, the director of Puerto Rico's Office of Management
& Budget. "We think it is unmerited and badly timed. We are
formally requesting a review."
A spokesman for Moody's in New York declined to comment,
saying, "Discussions between Moody's and its issuers are
Puerto Rico officials said they were taking the unusual step
because the ratings cuts made little sense after the island
posted its best quarter yet for sales-and-use-tax revenue.
In addition, Puerto Rico's economy appears to be expanding
in 2012 after six years of recession. Puerto Rico economic data
shows growth of 0.9 percent so far this year.
"With such positive economic indicators, we have to conclude
that this action is based on external economic conditions,"
Treasury Secretary Jesus Mendez said.
Other ratings agencies currently rate the sales-tax debt
above the new Moody's rating, according to officials, who said
they expect no other adverse ratings actions.
Puerto Rico finance officials had met several times with
Moody's analysts since April 17, when Moody's warned a downgrade
Moody's on Wednesday said the rating outlook for the sales
tax revenue bonds was stable but expected Puerto Rico's economic
growth to lag that of the United States and produce
weaker-than-expected growth in sales-tax revenues that would
hurt debt-service coverage.
Last month, Standard & Poor's revised its outlook on
outstanding Puerto Rico general obligation debt to negative from
stable. It was "critical" for the government to transition to
structurally balanced budgets after fiscal year 2013.
Even with the downgrades, Cofina, as the sales tax
corporation is known in Spanish, remains a healthy issuer,
Janney Capital Market Managing Director Alan Schankel said in a
commentary on Thursday.
"We continue to believe Cofina is the strongest of the major
Puerto Rico bond issuers," Schankel said.