Moody’s Investors Service Inc. disclosed Thursday it has upgraded the Puerto Rico Industrial Development Company’s general purpose revenue bond rating to “Baa1” from “Baa2” and changed the outlook to stable. This decision came even though Pridco has some $210 million of outstanding debt.
In its report, the agency said the Baa1 rating reflects “a pledged revenue stream derived from rentals of industrial space leased to a diverse group of industrial firms that has declined steadily during the economic recession, but still provides satisfactory coverage of debt service on a current and projected basis.”
Moody’s also noted Pridco’s role as a “major economic development entity of the Commonwealth of Puerto Rico government” and its dominant position on the island — with almost 24 million square feet under management in the industrial property market.
Meanwhile, the upgrade reflects “the fact that Pridco’s management team has managed to keep revenue and debt service coverage relatively stable during one of the worst economic downturns in the commonwealth’s history and recently called some near-term debt, bolstering coverage.”
While the commonwealth’s economy remains sluggish and Pridco is not immune to pressures in the industrial sector, its declining debt service after fiscal 2016 will also aid coverage assuming no issuance of additional debt.
Its conservative financing structure, with maximum annual debt service covered about 1.5 times by pledged revenues in fiscal 2011 and projected coverage of 1.5 times in fiscal 2012. Debt service coverage from all available revenues in fiscal 2011 was 2.9 times, Moody’s said.
PRIDCO’s Baa1 rating is independent of the commonwealth’s general obligation rating (Baa1/Negative), and while Pridco and the commonwealth GO rating could both be influenced by changes in the island’s economy, the ratings may not move in tandem, the New York firm further noted.
Pridco Executive Director José Pérez-Riera said Thursday getting a better grade from Moody’s helps the agency to carry out its mission under more favorable conditions.
“This way, we’ll be able to continue promoting Puerto Rico as an investment destination and attracting world-class companies to our island that contribute to our economic development and create jobs for our people,” said Pérez-Riera, who is also Economic Development and Commerce secretary.
While for the most part Moody’s had positive things to say about Pridco, the agency also noted several challenges ahead — Pridco’s revenues are vulnerable to the island’s troubled economy, which has been in a recession for the past six years and industrial vacancies are high and growth in rental income in the near term is unlikely.
“In particular, there have been declines in manufacturing and industrial activity and the forecast for growth remains weak,” Moody’s said.
Still, Moody’s said the agency’s outlook is stable and “expect[s] the credit to remain stable in light of the commonwealth’s modest economic growth forecast and expectation of continued strong management.”