Government Development Bank President Melba Acosta came down hard on Moody’s Investors Service’s decision to downgrade the Commonwealth’s credit rating deeper into junk status by saying the move shows “ratings agencies are totally out of tune with what’s happening” in Puerto Rico.
Reading off an email she said she received earlier in the day from a banker who expressed to her that markets were reacting favorably to the proposed increase in the sales and use tax — up to 11.5 percent from 7 percent approved Thursday by the House — and about the budget, Acosta called Moody’s decision “a bit ironic.”
During a presentation Thursday night before the Association for Financial Professionals, she went on to mention two instances when Moody’s surprised the government with downgrades — after the filing of the tax reform a few months ago and following the subsequent enactment of the Puerto Rico Public Corporation Debt Enforcement and Recovery Act.
“I sincerely don’t know what to think of them. They see things one way, we meet with them, explain things, and they don’t necessarily agree with what we’re doing. But every time I speak to investors, they think they [Moody’s] are increasingly less relevant,” Acosta said
In its rationale for the ratings cut, Moody’s cited the GDB’s dwindling cash resources, which it said could be depleted by the end of in the absence of market access or emergency actions to preserve cash.
The agency put into question the commonwealth’s ability to complete its planned financing — which would also inject cash into the GDB — before the end of the fiscal year.
“Puerto Rico and the GDB will be forced to pursue cash-conservation measures such as seeking to defer principal repayment to holders of bonds that are not protected by the strongest revenue pledges or constitutional provisions, such as GDB notes and the government’s subject-to-appropriation debt,” Moody’s said.
“As a consequence, ratings on Puerto Rico’s unprotected securities have dropped to levels consistent with substantial expected losses. The legally protected securities – notably, the government’s general obligation and COFINA bonds — are also affected by rising default risk, given that they account for a significant majority of the commonwealth’s tax-supported debt burden,” The agency further noted.
Moody’s outlook for Puerto Rico and its related debt remained negative, “because of trends such as weakening liquidity and economic deterioration, which we believe may further heighten default probabilities and further reduce bondholder recovery prospects in coming months.”