By Maria Armental
Fitch Ratings on Wednesday cut the rating of Puerto Rico's
general-obligation bonds one notch, deeper into junk territory,
citing the country's outstanding debt and unfunded pensions.
The downgrade follows earlier rating cuts from Moody's Investors
Service and Standard & Poor's tied to the commonwealth's new
law to overhaul other public debt. The law, signed by Gov.
Alejandro Garcia Padilla, allows some agencies, such as the
island's power, water and transportation authorities, to
restructure their debt.
Those agencies have a combined $19.4 billion outstanding,
according to estimates from Barclays PLC.
The law doesn't apply to Puerto Rico's general-obligation or
sales-tax debt.
While intended to restore solvency over the long-term, Fitch
said Wednesday, the restructuring as outlined in the law "would
trigger suspension of debt payments and preclude the timely payment
of principal and interest" while proceedings are pending.
Fitch lowered the commonwealth's general-obligation bonds and
general obligation-guaranteed debt to double-B-minus, three notches
below investment grade, citing mixed economic signs including
accelerated year-over-year drops in the labor force that have
accelerated in recent months and persistent year-over-year declines
in the Government Development Bank's monthly economic activity
index.
The rating agency also cut its rating on the commonwealth's
sales tax entity, known by its Spanish acronym Cofina, pension
funding bonds and Public Building Authority government facilities
revenue bonds guaranteed by the commonwealth to double-B-minus, and
cut about $3.4 billion in debt from the Puerto Rico Aqueduct &
Sewer Authority to B-plus.
Write to Maria Armental at maria.armental@wsj.com