Moody’s withdraws its Puerto Rico ratings

Bonds

Moody’s Investors Service has withdrawn its ratings for Puerto Rico and its various authorities for its own business reasons, the agency said Tuesday.

The withdrawal actions “are not related to the current ongoing restructuring processes under the Puerto Rico Oversight, Management, and Economic Stability Act,” the agency said in a release.

Moody’s would not comment further, though pointed to its policy for withdrawal of credit ratings, noting that default, incorrect, insufficient or otherwise inadequate information, among other issues can result in a withdrawal, not an uncommon occurrence.

“When [Moody’s] indicates that a Credit Rating was withdrawn for ‘business reasons,’ this often refers to [Moody’s] business reasons, not the business reasons of the rated entity or obligor,” the policy states. “Business reasons generally do not reflect any concerns about the rated entity’s creditworthiness or the quality of its management. Where appropriate, MIS’s decision to withdraw a rating under these circumstances will attempt to balance the informational benefit to market participants from maintaining a credit rating against the resources required to maintain and monitor that credit rating or other business considerations.”

At the time of the withdrawal, Puerto Rico’s general obligation rating was Ca and the outlook was negative.

S&P Global Ratings discontinued its Puerto Rico ratings in 2018 after lowering it to D in 2016 after the island first defaulted on its GOs.

Fitch Ratings in July 2016 downgraded Puerto Rico’s long-term issuer default rating to RD (restricted default) from C and general obligation bond rating to D from C following its defaults that year.

The affected ratings are the general obligation and related ratings of the commonwealth of Puerto Rico, including all ratings on the Puerto Rico Aqueduct & Sewer Authority, the Puerto Rico Electric Power Authority and the University of Puerto Rico, Moody’s said.

Market participants said Moody’s withdrawal should have little effect on Puerto Rico trading since the the bonds are in default, the restructuring has been the focus for five years, and at this point ratings ultimately matter little.

“It’s hard to see a bunch of below investment-grade ratings as anything but a distraction for the commonwealth’s restructuring efforts,” Municipal Market Analytics Partner Matt Fabian said. “What bondholders and the commonwealth and the board ultimately aspire to is investment-grade or at least high below investment-grade ratings once the restructuring is complete. Prior to that, however, not sure the ratings matter much.”

“The bondholder negotiations under way are just that, negotiations, that hinge on things far afield from security pledges and financials,” he said. “Tracking related changes in recovery prospects day to day would be exhausting.”

The Moody’s withdrawal affects: Puerto Rico, the Puerto Rico Public Buildings Authority, the Puerto Rico Public Finance Corp., the Puerto Rico Employees Retirement System, the Puerto Rico Municipal Finance Agency, the Puerto Rico Aqueduct & Sewer Authority, the Puerto Rico Electric Power Authority, the University of Puerto Rico, the Puerto Rico Convention Center District Authority, the Puerto Rico Highway & Transportation Authority, the Puerto Rico Infrastructure Financing Authority, the Puerto Rico Industrial Development Company and AFICA (only debt issued on behalf of the University of Puerto Rico included in this action).

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