Standard & Poor’s Ratings Services revised Monday its ratings outlook on the Government Development Bank for Puerto Rico to negative from stable, while affirming its ‘BBB/A-2’ ratings for the agency.
In its rationale, S&P said its action followed its outlook revision on the Commonwealth’s ratings negative from stable.
“We designate GDB as a government-related entity based on our view that the link between GDB and the Commonwealth is very strong and that GDB plays a very important role for the government, given that it provides funding to the Commonwealth and other Puerto Rican public corporations and that it’s fiscal agent to the Commonwealth and its instrumentalities,” S&P said in a statement issued Monday.
“According to our criteria, the rating on GDB cannot be higher than the rating on the Commonwealth because of the bank’s lack of independence from the government. Therefore, we would downgrade GDB in conjunction with a downgrade of the Commonwealth, even if GDB were to maintain its ‘bbb’ stand-alone credit profile,” the credit ratings agency said.
José Otero, the GDB’s executive vice president of financing, said Monday S&P’s move was expected and “in now way is a reflection of the GDB’s strength, stability and liquidity.”
He further said the downgrade would have no effect on any future transactions the GDB may carry out, because investors “conduct their own analysis and know very well how the bank’s finances are and believe they’re solid.”
“While we don’t agree with S&P, we respect their position,” Otero noted.
Looking ahead, S&P said if it were to lower it’s rating on the Commonwealth it “will very likely lower” it’s rating on the GDB.
“We do not believe that the GDB is sufficiently independent from the Commonwealth to justify a higher rating. If the GDB continues to shift its funding base toward wholesale borrowings, or if the bank pays a large special dividend, which we do not view as likely, we could lower the rating —even if the rating on the Commonwealth remains the same,” S&P noted.