Fitch keeps AAA at BBB+ in fifth year of recession

On October 21, 2011, CPI summarized Fitch Ratings’ assessment that kept Aqueduct and Sewer Authority (AAA) bonds at BBB+ with a “stable” outlook, even though Puerto Rico was in its fifth straight year of recession — “earlier, deeper and longer” than the U.S. one, per the firm. Still, Fitch saw signs of stabilization and “modest growth” for fiscal 2012.

The rating rested mainly on the Commonwealth’s guarantee and full faith (same rating as the corporation). AAA carried $159.1 million in 2008 Series A bonds and $125.7 million in Series B, tied to aqueduct/sewer revenues plus the state guarantee; payment, per a Justice Secretary opinion cited by Fitch, is first priority over government resources. The firm reiterated historically weak finances: budget and actuarial deficits, overestimated revenues, unfunded spending and reliance on loans to close gaps; it recognized “dramatic steps” of fiscal restructuring as a positive, but “very high” debt and an “exceptionally low” pension fund without major action — higher contributions would help over time at the cost of more spending pressure.

In the two most recent budgets, $282 million in subsidies were allotted to AAA ($84 million in 2010-11 and $198 million in the current year). Rating and guarantee ≠ subsidy disbursement or debt write-off.

Source: Centro de Periodismo Investigativo. https://periodismoinvestigativo.com/2011/10/puerto-rico-en-su-quinto-ano-de-recesion-dice-fitch-ratings/