Standard & Poor’s lowered its ratings on Puerto Rico to junk on Tuesday, questioning its ability to raise money to finance a possible fiscal 2015 operating deficit.
The agency cut its rating one notch, to BB+ from BBB-, the highest junk-level rating. S.&P. said it was also keeping Puerto Rico on watch for downgrade, meaning more reductions were possible.
“In our view, Puerto Rico has limited liquidity without access to the debt market,†S.&P. said in a statement, “for sizable amounts of debt, and may also need further market access to finance a potential fiscal 2015 operating deficit, notwithstanding current efforts to close the deficit.
S.&P. is the first agency to lower Puerto Rico to junk status, but its rivals, Moody’s Investors Service and Fitch Ratings, have said they are considering lowering their ratings on the commonwealth, which would also move it into junk territory.
The downgrade could have painful consequences. About $1 billion of debt repayments will be accelerated and additional collateral will have to be posted for interest rate swaps.
Officials in Puerto Rico have insisted that there is ample liquidity to last through the end of the government’s fiscal year, June 30, without additional borrowing. They say they have made progress on increasing tax revenue and cutting pension liabilities.
S.&P. appeared to give that some credence.
“That the rating is not lower is due to the progress the current administration has made in reducing operating deficits, and what we view as recent success with reform of the public employee and teacher pension systems, which had been elusive in recent years,†it said in its statement.
