Fitch Ratings lowered Puerto Rico’s debt to junk status on Tuesday, becoming the last of the top three ratings agencies to downgrade the financially struggling island.
Fitch dropped its rating two notches, to BB from BBB-, citing Puerto Rico’s high debt load and pension liabilities and its increasing inability to borrow money on the capital markets. Standard & Poor’s and Moody’s Investors Service cut Puerto Rico’s rating to junk last week.
“Recent downgrades have triggered new liquidity requirements and lowered expectations for the market available for the commonwealth’s debt going forward,†Fitch said in a statement.
Fitch said that the key to stabilizing the commonwealth’s finances would be the performance of the economy, which has been in recession since 2006. But there is not much good news there. Puerto Rico has $70 billion in debt, a 15.4 percent unemployment rate, a soaring cost of living, pervasive crime, crumbling schools and an exodus of professionals and middle-class Puerto Ricans.
Puerto Rico said on Tuesday that it planned to issue general obligation bonds to refinance debt and improve its liquidity but did not detail the timing or amount of debt it plans to sell. Gov. Alejandro Garcia Padilla said on Monday that he had asked the legislature for approval to borrow up to $3.5 billion in new general obligation bonds. He also said he planned to bolster the island’s economy by overhauling its tax system and reducing government spending.
“Puerto Rico’s current management has repeatedly shown its ability and willingness to take quick action to address financial challenges and external market concerns, much of which has required legislative action. However, underlying the need for these measures is the very difficult economic, financial, and market situation that management continues to confront,†Fitch said in a statement.
Mr. Garcia Padilla vowed that the island would not default on its debt. Puerto Rico cannot file for bankruptcy, and some market participants anticipate the federal government will have to come up with a financial rescue, something it has so far been reluctant to consider.
