Another Debt Rating Downgrade in Puerto Rico

Jon C. Ogg

Puerto Rico is having a hard time finding very many fronts. Now comes news that ratings agency Standard & Poor’s has downgraded the Government Development Bank for Puerto Rico (GDB). Tuesday’s downgrade went from “CC” to “CCC-” and the outlook is Negative.

S&P showed that the GDB faces almost $900 million of notes maturing in fiscal 2016, while it had net liquidity of about $778 million as of May 31, 2015. S&P fears that the GDB will have difficulty meeting it debt service requirements with a limited ability to raise capital.

Back on July 10, the GDB said that intends to purchase or exchange its outstanding senior notes from time to time in the open market and/or via private transactions. The bank said that this would take place materially less than the par value of the notes.

Melba Acosta, who is President of the GDB, has also been quoted in the press referring to a debt restructuring which was also said to be below par value. She also discussed a consensual adjustment on a portion of Puerto Rico’s debt. S&P says that, while details are unclear, the ratings agency would likely classify an exchange offer or a similar restructuring as effectively being a default.

here is what should stand out most on top of the CCC- and the Negative outlook — “reflecting our view that a default is virtually certain.”

If any debt exchange occurs, that will take the S&P debt rating down to “SD” and newly exchanged debt will carry a “D” rating. Below is the montage from the GDB showing how many outstanding debt issues were impacted by the downgrade:


PR DB Downgrade