NEW YORK, Sept 11 (Reuters) - Puerto Rico’s recently announced fiscal plan puts all its credits at risk of restructuring, Fitch Ratings said, and the agency expects to downgrade specific securities to a ‘C’ as the restructuring plans become clearer.
The plan, the product of a task force created in June by Puerto Rico Governor Alejandro Garcia Padilla, recommends a voluntary exchange offer and states that “available resources may be insufficient to service all principal and interest on debt that has a constitutional priority.”
That means the island’s general obligation bonds, considered sacrosanct by the market, are potentially at risk for restructuring.
The Puerto Rico government’s interactions with debtholders are “highly dynamic, limiting the predictability of outcomes,” according to Fitch. Fitch rates all of the commonwealth’s debt CC, which is one notch above D, meaning the rating agency thinks that default of some kind appears probable.
As restructuring plans become clearer, Fitch anticipates ratings downgrades for different securities to ‘C’.
Garcia Padilla said in June that the island’s debt, totaling $72 billion, was unpayable and required restructuring.
In addition to local reform measures, like cuts to the University of Puerto Rico, the plan also asks the federal government for help, including an exemption from a shipping law and tax legislation that would promote corporate growth.
“In our view, political challenges to action at the federal level and in the commonwealth’s legislature are likely and the outcome is uncertain,” Fitch said.
Moody’s Investors Service said that the commonwealth’s plan could further hurt recovery rates, and that the island’s debt may face an additional downgrade. Following the release of the plan, Standard & Poor’s Ratings Services lowered its rating on Puerto Rico’s tax-backed debt to CC from CCC-. (Reporting by Jessica DiNapoli; Editing by Tom Brown)