Puerto Rico remains on review for downgrade by Moody’s and Fitch, and the next month could see action from either or both agencies. Regardless of the rating, the grim facts around Puerto Rico’s economic, fiscal and demographic state are clear. While we applaud the administration’s efforts to free up liquidity and aid the ailing pension system, a restructuring may be unavoidable. In fact, the island will need to borrow relatively soon to meet its obligations, and it may well find it difficult or impossible to access the market for financing. That may dictate whether Puerto Rico buys some additional time or finds itself pressed into a restructuring.
Ultimately, Puerto Rico’s troubles have been well telegraphed and largely priced into the market, underscoring our call for minimal downgrade-related ripple effects.
As always, we would point to thorough credit research as the lynchpin to effective decision-making in today’s municipal market. There are big disparities across credits and issuers, even in Puerto Rico. It’s critically important to know what you own, and to know what to avoid.
Peter Hayes, Managing Director, is head of BlackRock’s Municipal Bonds Group and a regular contributor to The Blog. You can find more of his posts here.
Sources: BlackRock, S&P Indices