Standard & Poor’s Ratings Services continued the downgrading streak by credit ratings agencies in recent weeks, by slashing the standing of the Puerto Rico Aqueduct & Sewer Authority and the Government Development Bank on Monday.
PRASA’s revenue bonds, guaranteed by the Commonwealth of Puerto Rico, were slashed by one notch to ‘BB’. At the same time, Standard & Poor’s lowered its rating on PRASA’s revenue bonds to ‘BB-‘ from ‘BB+’. The outlook is negative.
“The actions reflect our downgrade of the commonwealth’s general obligation debt,” said S&P credit analyst Theodore Chapman.
The negative outlook affects PRASA’s series 2008A and 2008B revenue bonds, of which $285 million are outstanding.
“We have also lowered PRASA’s stand-alone credit profile [SACP] to ‘bb-‘, from ‘bb+’. The SACP reflects our view of the authority’s general creditworthiness based solely on its own fundamentals, absent any uplift or headwinds associated with its relationship with the general government,” he said.
The lower SACP is because S&P views the current climate surrounding all Puerto Rico obligations as creating adverse business conditions for PRASA.
“Its liquidity has no immediate challenges because of a 2012 bond restructuring that included the injection of temporary working capital, as well as a 60 percent rate increase in 2013,” he said.
“However, we view the Authority’s ability to extend its lines of credit [LOCs; expiring in March 2015] or convert them to long-term debt as now being more difficult. PRASA has little discretion in its capital improvement program given the large share of regulatory-ordered, date-certain mandates as a share of total projects,” Chapman said.
As for the GDB, S&P followed Moody’s Investors Services lead, lowering its long-term issuer credit rating to ‘BB-‘ from ‘BB’. The outlook is also negative. S&P also affirmed its short-term issuer credit rating on GDB at ‘B’, lowering the stand-alone credit profile to ‘b+’ from ‘bb+’.
“The rating action reflects the increased likelihood that GDB could suffer material losses following the enactment of the Puerto Rico Public Corporation Debt Enforcement Act, which allows certain Puerto Rican public corporations of the Commonwealth to seek protection from creditors through a debt restructuring,” said S&P credit analyst Sunsierre Newsome.
“GDB significantly depends on the ability of the Commonwealth and its public corporations to repay their debt. GDB has lending exposures to three public corporations aggregating about $2 billion,” he said, referring to the Puerto Rico Electric Power Authority, which has $40.4 million outstanding to GDB, and the Highways and Transportation Authority, with about $2 billion outstanding as of June 30, 2013.