Puerto Rico public corporations hit by downgrades

June 27, 2014

SAN JUAN, Puerto Rico (AP) — Two more of Puerto Rico's largest public corporations were hit with credit downgrades Friday as the U.S. territory's governor prepares to sign a bill that would allow them to restructure their debt if needed.

Moody's Investors Service lowered its ratings on the water and sewer company and the highway and transportation authority, pushing them deeper into junk territory.

The announcement came after Moody's, Standard & Poor's and Fitch Ratings all downgraded Puerto Rico's state-owned power company and put its debt in junk status. The Electric Energy Authority has some $671 million in debt that matures in July and August, leading to speculation it might seek to restructure its debt.

All the ratings are on watch for possible further downgrades as Puerto Rico's government aims to appease investors while trying to reduce $73 billion in public debt and pull the island out of a nearly 10-year economic slump. Public corporations account for nearly 40 percent of the island's debt.

"The governor's proposal of a public corporation liability law earlier this week signals a rising risk that the commonwealth ... is contemplating a strategic restructuring of its public corporation debt," Moody's said in a statement.

Gov. Alejandro Garcia Padilla introduced the measure Wednesday to allow certain public corporations to work with creditors to reach an agreement within nine months. If none was reached, the case would go to court.

Legislators have already approved it, and Garcia said Friday he would sign the bill soon. "Public corporations have to be self-sufficient. End of story," he told the annual convention of the Puerto Rico Chamber of Commerce.

Government officials have said Garcia's measure is not intended to allow public agencies to file for bankruptcy or seek liquidation. They add that it does not apply to the government's general obligation debt or to the island's 78 municipalities, the Government Development Bank or other entities.

Alberto Lazaro, executive president of Puerto Rico's water and sewer company, said that agency is not planning to restructure its debt. "We are not facing liquidity issues," he said.

Javier Ramos, executive director of the highway and transportation authority, said he already imposed strict spending measures and is seeking other ways to overcome the agency's financial crisis.

Garcia also is expected to sign the territory's new budget even as some legislators warn that a $200 million budget gap has not been resolved. Both the island's Senate and House of Representatives have approved a $9.6 billion budget but are expected to meet again to resolve the issue.

The budget has to be approved before July 1.