Following the footsteps of Moody’s, Fitch has announced it has downgraded the bond rating of the Puerto Rico Electric Power Authority to BBB-, leaving one notch above non-investment grade, or junk status.
The downgrade is due to what Fitch calls “persistently slimmer operating margins, cash flow and debt service coverage due to the effects of the economic recession, declining electricity usage, high fuel costs and growing account receivables, as well as Fitch’s expectation that stronger financial performance is unlikely over the near term.” Like with the Moody’s downgrade, recent steps by the current administration to give the Puerto Rico Aqueduct and Sewer Authority a preferential rate, which created a nearly $40 million gap in PREPA’s budget, could have prompted the decision and conclusion by Fitch that stronger financial performance is unlikely.
The agency also mentioned the reluctance in Puerto Rico to increase base rates for power consumption, which have remained the same since 1989. An increase in these rates is even more unlikely now, as the government is grappling with the backlach from its approval of a new budget that has more than $1,300 million in new taxes to businesses and consumers.
