(Adds details on report, background on rating and Puerto Rico, legislation)
WASHINGTON, June 11 (Reuters) - 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 performance.
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 economic problems.
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 investment grade. (Reporting by Lisa Lambert; Additional reporting by Bangalore Newsroom; Editing by Leslie Adler)