Feb 12 (Reuters) - Standard & Poor’s said on Thursday it had downgraded Puerto Rico’s general obligation debt by three notches, deeper into junk territory, citing a judge’s decision to void the U.S. commonwealth’s plan for debt restructuring.
The credit ratings agency lowered Puerto Rico’s GO debt rating to B from BB, citing the island’s potential inability to pay its debts, after persistent economic weakness has chipped away at revenues over many years.
Late last week, a federal judge ruled that Puerto Rico’s so-called Recovery Act, which made some of its agencies eligible for court-supervised debt restructuring, violated the U.S. constitution by allowing a state government to modify municipal debt. Puerto Rico has said it will appeal.
The agency said it believed Puerto Rico “will continue to face a major reduction in its ability to obtain external liquidity at a reasonable cost,” as evidenced by the island’s general obligation bond yields topping 10 percent, following the court’s decision that invalidated the debt restructuring law.
“As a result, Puerto Rico’s access to cash flow financing necessary for the next fiscal year could be severely constrained in our opinion,” S&P said. (Reporting by Robin Respaut, editing by G Crosse)