SAN JUAN – Standard & Poor’s on Thursday downgraded Puerto Rico’s general obligation, or GO, bonds from CC to D (default), its lowest possible level, after the U.S. commonwealth’s government missed payment on nearly $780 million worth of that constitutionally guaranteed debt.
S&P announced the ratings action in a statement Thursday, recalling that Puerto Rico on July 1 failed to pay $779 million owed to holders of GO bonds, which are directly issued by the island’s government and are supposed be repaid even before covering the cost of essential services, such as education, police and sanitation.
The U.S. commonwealth, which has a massive debt load of more than $70 billion and has been in recession for most of the last decade, had earlier defaulted on bonds issued by different government agencies.
The July 1 default occurred after more than two years of debt-restructuring talks with investors and just hours after President Obama signed a law installing a financial control board to restructure the island’s debt and providing a retroactive stay on lawsuits by bondholders.
Fitch Ratings downgraded Puerto Rico’s credit rating to default on Tuesday for the same reason, while Moody’s Investors Service on July 1 revised its outlook on Puerto Rico from negative to developing due to the new law, known as the PROMESA Act.
Moody’s said that law reduces the “risk of protracted litigation” but noted that the “oversight board created by PROMESA will have “wide authority in shaping how an eventual debt restructuring plays out.”
That board could prioritize pensions and reduce possible debt recovery prospects, it said.
In a move tied to the creation of the control board, Puerto Rican Gov. Alejandro Garcia Padilla announced Thursday that Melba Acosta, the island’s head negotiator in debt-restructuring talks, chief financial officer and the president of the U.S. commonwealth’s Government Development Bank, would resign from service effective July 31.
Garcia Padilla gave no reason for her resignation but praised her for her “enormous contributions” in getting Puerto Rico back on the road to fiscal responsibility.