S&P upgrades PR credit rating; first in 28 years
S&P hiked the general obligation bond (GOs) debt rating from BBB- to BBB. The island’s rating had hovered just one notch above non-investment grade, or junk status, since 2007 during the Acevedo Vilá administration. It had been moving downward since the Calderón administration.
The upgrade, the first on Puerto Rican GOs from S&P in 28 years, comes after a meeting last week between Government Development Bank and S&P officials.
Between 2002 and 2007, S&P took six negative actions against Puerto Rico’s credit, which was lowered from A in 2000 to BBB- by 2007. Downgrades occurred in 2002, 2005 and 2007.
S&P had signaled a potential upgrade in November when it lifted the island’s rating outlook to “positive” from “stable.”
“The upgrade is based on our view of the commonwealth’s recent revenue performance and continued efforts to achieve fiscal and budgetary balance,” said S&P analyst Horacio Aldrete-Sánchez, who pointed to better-than-expected revenues from a recently enacted excise tax that will allow provide the needed “flexibility” to reach a balanced budget in two years.
“The fiscal measures taken by the Fortuño administration represent in our opinion a stabilizing factor over the short term for the credit of Puerto Rico that can deliver the expected results for fiscal year 2013 if the economy stabilizes and the budgetary discipline is maintained,” Aldrete-Sánchez said.
Gov. Luis Fortuño said his administration’s performance represents a “dramatic break” with the past decade, when ratings agencies downgraded Puerto Rico’s credit after the broken promises of the past administrations.
“S&P is essentially saying that Puerto Rico has made enormous progress improving its finances and has a concrete and reliable plan to follow. They are recognizing our success in improving our handling of public finances and the economy,” the governor said.
The governor said credit ratings have real consequences, saying that three downgrades during the past two administrations wound up costing taxpayers $900 million more. With the improved rating, bonds emitted this year will cost taxpayers $150 million less over the life of the bonds through better interest rates.
“How many schools could have been built or highways repaired with that $900 million?. That’s what the administrative incapacity of the previous administrations cost Puerto Rico,” Fortuño said.
GDB President Juan Carlos Batlle said the objective criteria used by S&P would have given Puerto Rico an A- grade, but that the government workers pension problem, which has an $18 billion unfunded liability, and its limited political powers as a U.S. commonwealth, capped the rating upgrade at BBB.
Fortuño reiterated Monday that his administration would submit legislation before June aimed at shoring up Puerto Rico’s public pension fund.
Batlle said the rating improvement would present further refinancing opportunities, and the commonwealth is undertaking a $150 million deal this week to refinance GO bonds.
Also Monday, Fortuño announced that the independent Business Monitor International revised upward its annual economic growth projection for Puerto Rico over the next five years to 1.7 percent from 0.9 percent.
“We are cautiously optimistic about the future for the island’s economy, which has been mired in recession for over four years,” the BMI reported. “Drastic measures designed to improve the territory’s business environment could attract considerable amounts of [offshore] investment, providing a much-needed boost to economic growth.”