Puerto Rico’s Power Company Bonds in Freefall
EspañolThe rating agency Standard & Poor’s (S&P) downgraded yesterday the debt of Puerto Rico’s Electric Power Authority (AAE) from BB to BB-. This is S&P’s third downgrade in two months, thus joining the agencies Fitch and Moody’s who adopted the same measure last month.
S&P made the decision after Puerto Rico’s Development Bank announced it would not provide financial assistance to AAE in case it failed to renew its credit lines.
The state company in charge of the generation, transmission, and distribution of electricity in Puerto Rico is in a fragile financial situation. Uncertainty about the renewal of credit lines with Citibank and Scotiabank, critical for the purchase of fuel, threatens to worsen the company’s collapse. AAE already owes Scotiabank US$525 million and Citibank about US$146 million, due in July and August.
“We thank our lenders for their continued cooperation and support as we work to transform the Authority and to better serve our customers,” said John F. Alicea Flores, AAE executive director. While negotiations with the banks continue, the state company is considering restructuring its total liability by resorting to legislation passed last month, the “Puerto Rico’s Public Corporations Debt Enforcement and Recovery Act.”
In June, the rating agencies downgraded AAE’s debt several times, which currently is in free fall. S&P, Fitch, and Moody’s announced they’re following closely the result of the negotiations after decisions that have already led them to consider the US$8.8 billion in bonds issued by AAE as “junk investment.” The agencies haven’t ruled out another downgrade, but the power company is confident that it will solve its liquidity problems in the coming weeks.