As anticipated Puerto Rico’s debt has been downgraded to Junk. Read more here:
Standard & Poor’s lowered the debt of Puerto Rico to junk status on Tuesday, sending shock waves through the investor community, which has long enjoyed the tax-exempt interest generated by the island’s municipal bonds. While S.&P. only dropped Puerto Rico’s rating to BB+ from BBB-, the one-notch downgrade has intensified a cash squeeze for the commonwealth, Mary Williams Walsh writes in DealBook.
Though much of the island’s debt was issued with promises to make cash payments if it fell below investment grade, Puerto Rico is currently lacking the cash to make good on its word despite recent efforts to shore up liquidity. To make matters worse, some institutional holders of the debt have rules saying they cannot hold junk-rated debt — but only if two of the three top rating agencies downgrade the debt to below investment grade. While Moody’s Investors Service and Fitch Ratings both rate the island’s debt a single notch above junk, S.&P.’s downgrade has eroded market confidence, leaving investors fearing the worst.
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