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Rating Action:

Moody's places Puerto Rico general obligation and related bonds on review for downgrade

Global Credit Research - 11 Dec 2013

Approximately $52 billion of rated debt affected

NOTE: On December 12, 2013, the press release was revised as follows: Correction to first First sentence of the Opinion. Correction to First sentence under SUMMARY RATING RATIONALE. Revised release follows.

New York, December 11, 2013 -- Moody's Investors Service has placed on review for downgrade the general obligation (G.O.) Baa3 rating of the Commonwealth of Puerto Rico. At the same time, ratings that are capped by or linked to the commonwealth's G.O. rating were also placed on review, including the Puerto Rico Sales Tax Financing Corporation's (COFINA's) senior and junior lien bonds.

SUMMARY RATING RATIONALE

Downward pressure on the rating arises from the Commonwealth's weakening liquidity, increasing reliance on external short-term debt, and constrained market access, within the context of a weakened and now sluggish economy. These developments exacerbate the longstanding financial strain brought by the commonwealth's very high debt load and pension obligations, as well as its chronic budget deficits.

During the review period, we will focus on the following:

--The ability and willingness of the commonwealth to access the long-term capital markets

--Key economic indicators, including employment data, retail sales and the island's Economic Activity Index (EAI)

--Financial performance in coming months, including key December revenues

--Legislative actions to reform the Teachers' Retirement System (TRS), shore up liquidity, or take any other actions to preserve fiscal stability

--The proposed budget for fiscal year 2015

WHAT COULD MAKE THE RATING GO DOWN

Given the current pressures on the rating, the review is likely to result either in a confirmation of current rating levels or a downgrade. A downgrade would be increasingly likely if the review produced evidence of:

--Failure to access the public debt market with a long-term borrowing

--Declines in liquidity

--Financial underperformance in coming months

--Economic indicators in coming months that point to a further downturn in the economy

--Inability of government to achieve needed reform of TRS.

The principal methodology used in rating the Puerto Rico Sales Tax Financing Corporation bonds was the US Public Finance Special Tax Methodology published in March 2012. The principal methodology used in rating the other Puerto Rico (Commonwealth of) bonds was the US States Rating Methodology published in April 2013. The additional methodology used in rating the Government Development Bank for Puerto Rico was Rating Transactions Based on the Credit Substitution Approach: Letter of Credit backed, Insured and Guaranteed Debts published in March 2013. The additional methodology used in rating the Puerto Rico Public Finance Corporation appropriation debt was The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations published in December 2011. The additional methodology used in rating the Puerto Rico Highway and Transportation Authority bonds, the Puerto Rico Convention Center Authority Hotel Occupancy Tax Revenue bonds and the Puerto Rico Infrastructure Finance Authority Special Tax Revenue bonds was the US Public Finance Special Tax Methodology published in March 2012. The additional methodology used in rating the Puerto Rico Aqueduct and Sewer Authority was the Analytical Framework for Water and Sewer System Ratings published in August 1999.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit 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

Emily Raimes
VP - Senior Credit Officer
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 places Puerto Rico general obligation and related bonds on review for downgrade
No Related Data.

 

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