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Announcement:

MOODY'S AFFIRMS Baa1 RATING ON PUERTO RICO CONVENTION CENTER DISTRICT AUTHORITY'S $447 MILLION HOTEL OCCUPANCY TAX REVENUE BONDS

Global Credit Research - 26 Jan 2012

OUTLOOK IS NEGATIVE

New York, January 26, 2012 -- Moody's Investors Service has affirmed the Baa1 rating on the Puerto Rico Convention Center District Authority's $447 million outstanding hotel occupancy tax (HOT) revenue bonds. Bond proceeds were used to finance the 580,000 square-foot convention center in San Juan, as well as related infrastructure improvements in the convention center district. Final bond maturity is in 2036.

SUMMARY RATING RATIONALE

The HOT rating incorporates the direct credit linkage with the Commonwealth of Puerto Rico's G.O. bonds, similarly rated Baa1 with a Negative outlook. Under Puerto Rico's Constitution, all commonwealth taxes - including taxes such as the HOT that are statutorily allocated to specified governmental authorities - are subject to a prior pledge in favor of payment of the commonwealth's G.O. debt and guaranteed debt, if necessary after exhausting other available resources. To date, the commonwealth has never needed to access the pledged tax revenues of any bond-issuing government authorities in order to make G.O. debt payments, nor is it expected to do so in the future. The legal pledge, however, makes a credit and rating linkage between the bonds unavoidable.

For additional credit information on the commonwealth of Puerto Rico, see our report dated December 6, 2011.

STRENGTHS

* Pledged revenues derived from Puerto Rico's important tourism and business-related visitor activity, which is on the rebound after a significant economic recession and sluggish recovery in the U.S. and remains well-positioned and popular relative to other Caribbean destinations.

* Conservative financing structure, with current debt service covered about 1.9 times by HOT revenues in fiscal 2011.

* Bonds can withstand a "stress test" of a 34% drop in HOT revenues - i.e. twice the decline seen in fiscal 2002 after the mainland U.S. terrorist attacks of 9/11 - and still yield 1.2 times debt service coverage, assuming no additional debt issuance.

CHALLENGES

* Commonwealth of Puerto Rico's general government finances are under significant strain, and HOT revenues are subject to a constitutional prior pledge in favor of the commonwealth's G.O. bonds and guaranteed debt, if necessary after exhausting other available resources.

* HOT revenue stream could be vulnerable to tropical storm damage to island hotels, potential interruption in airline service and/or significant change in airline business dynamics and increasing competition from other vacation alternatives. Similar to other tourism revenue financings, visitor levels and associated HOT revenues could also potentially be vulnerable to trends of increased crime affecting island visitors (though no such trend has been evident to date).

* Bond trust agreement permits additional parity debt for future tourism-related projects, subject to a 1.4 times debt service coverage test.

Outlook

The Authority's HOT bond outlook is negative due to its direct credit linkage with the commonwealth of Puerto Rico's G.O. bonds, similarly rated Baa1 negative. The outlook reflects the stress the commonwealth will face in the next few years as it continues to attempt to address the underfunding of its retirement system from an already weak financial and economic position.

WHAT COULD MAKE THE RATING GO UP

* Upgrade of commonwealth's G.O. rating

* Continued good Puerto Rico hotel visitor levels

* Continued strong HOT debt service coverage

WHAT COULD MAKE THE RATING GO DOWN

* Downgrade of commonwealth's G.O. rating

* Significant and sustained decline Puerto Rico hotel visitor activity (or outlook)

* Significant and sustained decline in HOT debt service coverage (or outlook)

The principal methodology used in this rating was Moody's State Rating Methodology published in November 2004. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information source used to prepare the rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, and confidential and proprietary Moody's Analytics' information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Lisa Heller
Vice President - Senior Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert A. Kurtter
MD - Public Finance
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

MOODY'S AFFIRMS Baa1 RATING ON PUERTO RICO CONVENTION CENTER DISTRICT AUTHORITY'S $447 MILLION HOTEL OCCUPANCY TAX REVENUE BONDS
No Related Data.
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