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July 9 (Reuters) - Standard & Poor's Ratings Services slashed its rating on Puerto Rico Electric Power Authority's (PREPA) revenue bonds by four notches to 'B-' from 'BB', citing the agency's inability so far to negotiate the renewal of a line of credit from Citibank and the threat of potential debt restructuring.
PREPA said on Monday it won a reprieve until July 31 to work out payments on lines of credit with Citibank and ScotiaBank de Puerto Rico. It's on the hook for $671 million of payments through mid-August with the two lenders.
PREPA has been in talks with Citibank since that revolving credit matured in January. The revolving credit with ScotiaBank matures on Aug. 14, S&P said.
The ratings cut sparked a burst of trading of PREPA bonds on Wednesday, but prices were mixed and most bonds appeared to be trading within previous ranges.
The super-downgrade suggests "they might not be able to work out an agreement with the lenders," S&P analyst Judith Waite told Reuters.
"If that's the case, now that the new law has been passed, they now have an option that they might pursue," she said, referring to a law passed in late June that allows Puerto Rico's public corporations to restructure. "The delay in getting to a resolution with the liquidity providers seems in our mind to bring them closer to that point."
PREPA, which has $8.6 billion of power revenue bonds outstanding, has no other major lines of credit that S&P is watching, she said.
Analysts still think PREPA may be able to work out a resolution with the banks.
"If we thought there was really no possibility, the rating would be lower," Waite said.
S&P is keeping its 'B-' rating on watch for further possible downgrades. It expects to resolve the negative credit watch within the next three months.
Another Wall Street credit rating agency, Moody's Investors Service, punished Puerto Rico's general obligation debt following the new restructuring law.
Moody's cut its rating on $14.4 billion of the island's general obligation bonds to B2 on July 1, when it also downgraded ratings on Puerto Rico's agencies and public corporations, affecting an additional $46 billion of bonds. (Reporting by Hilary Russ in New York; Additional reporting by Abinaya Vijayaraghavan in Bangalore; Editing by Simon Jennings and Meredith Mazzilli)