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S&P Dismisses Puerto Rico to Junk-Bond Isolation

By: PanAm Post Staff - Feb 5, 2014, 8:37 am

Español As of yesterday, Puerto Rico’s general-obligation bonds fell one step to speculative grade, according to Standard & Poor’s (S&P), as the rating agency cited the US commonwealth’s limited ability to access capital markets.

S&P lowered the island from BBB- to BB+ — a junk-bond status — at an awkward time. Island officials plan to sell bonds as soon as this month to raise funds and plug deficits, and they will face ever higher costs of borrowing.

Puerto Rico could not avoid the decision, even after politicians reduced pension benefits and increased taxes. Governor Alejandro Garcia Padilla, who took office in January 2013, said he would release a budget for next fiscal year that doesn’t rely on deficit borrowing, ending a practice used in every spending plan since at least 2000.

The commonwealth and its agencies have about US$70 billion of debt — $16 billion of which is backed by Puerto Rico’s full faith and credit.

The commonwealth’s access to liquidity will remain constrained in the medium term, although the Moody’s and Fitch rating agencies have not announced decisions, which would worsen Puerto Rico’s fiscal crisis.

Sources: Bloomberg and Reuters.