Markets

Moody’s Follows S&P, Downgrades Puerto Rico to Junk Status

By: Caribbean Journal Staff - February 7, 2014

Above: San Juan (CJ Photo)

By the Caribbean Journal staff

Moody’s Investors Service has downgraded the general obligation of the Commonwealth of Puerto Rico to Ba2, or “junk” status, the New York-based firm announced Friday.

The move follows a similar downgrade by Standard & Poor’s earlier this week.

“The problems that confront the commonwealth are many years in the making, and include years of deficit financing, pension underfunding, and budgetary imbalance, along with seven years of economic recession,” Moody’s said in a statement. “These factors have now put the commonwealth in a position where its debt load and fixed costs are high, its liquidity is narrow, and its market access has become constrained”

While the firm said the administration of Puerto Rico Governor Alejandro Garcia Padilla had “taken strong and aggressive actions to control spending, reform the retirement systems, reduce debt issuance, and promote economic development,” it had not been enough.

“Despite these accomplishments, however, in our view the commonwealth’s credit profile is no longer consistent with investment grade characteristics,” the firm said.

Puerto Rico’s outlook is also “negative,” according to the ratings firm.

“While some economic indicators point to a preliminary stabilization, we do not see evidence of economic growth sufficient to reverse the commonwealth’s negative financial trends,” Moody’s said. “Without an economic revival, the commonwealth will face difficult decisions in coming years, as its debt and pension costs rise. The negative outlook signals the remaining challenges facing the commonwealth.”

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