Ratings agency Standard & Poor’s reduced its rating for Puerto Rico’s general-obligation bonds to speculative, or junk, status.
S&P cut its ranking of Puerto Rico’s debt from BBB- to BB+ and suggested further cuts could be forthcoming.
The New York-based agency also scaled back its rating of bonds issued by the Government Development Bank for Puerto Rico by two levels to BB.
“The commonwealth’s access to liquidity either through the GDB or other means will remain constrained in the medium term, even in the event of a potential issuance of debt planned next month,” S&P analyst David Hitchcock wrote. “These liquidity constraints do not warrant an investment-grade rating.”
S&P said it would have downgraded Puerto Rican bonds by two or more steps if not for recent moves by the government in San Juan to slash budget deficits and curb public employee pensions.
The intention announced by the current administration to reduce the deficit for the 2014 fiscal year by $170 million and present a balanced budget for fiscal 2015 could lead to an improvement in its credit rating over the long term, the agency said.
The island is now in the eighth year of recession and has an unemployment rate of more than 15 percent.