SAN JUAN Oct 23 Standard & Poor's on Friday maintained its CC rating on $47.5 billion of tax-backed Puerto Rican bonds, reflecting a negative outlook after the U. S. Treasury Department pushed Congress to pass laws to address the island's economic crisis.
The U. S. commonwealth, facing $72 billion in debt, has said it could run out of cash by next June, and some analysts believe it will default as early as Dec. 1, when it owes a $355 million payment.
Treasury's proposal, the Obama administration's first public directive on how to address the U. S. territory's problems, would allow the Puerto Rican government to file for bankruptcy, improve its Medicaid and Medicare funding levels, and extend earned income and child tax credits to the island.
In a Friday statement, S&P said its rating "reflects our view that a default is highly likely, with or without enactment of this proposal."
S&P reasoned that, if enacted, bankruptcy could hurt rather than help bond prices by giving Puerto Rico court-sanctioned leverage to restructure.
The proposal is likely to face an uphill climb in Washington, which means a default likely could occur before legislation is passed anyway, S&P added.
At a Thursday hearing on the island's fiscal problems, held by the U. S. Senate Committee on Energy and Natural Resources, lawmakers expressed skepticism toward a timely passage of any Puerto Rico legislation.
Democratic senators urged Treasury to find creative ways to address Puerto Rico's problem itself, while Republicans demanded the island's government be more forthcoming about its financial statements.
The question of bankruptcy is central to Puerto Rico's crisis, because the commonwealth is excluded from the debt restructuring laws that govern U. S. states.
Some Puerto Rican leaders support granting the commonwealth the right to put certain ailing agencies into bankruptcy, which would put the island on an even footing with states.
Treasury's proposal would go a step further, allowing the government itself to file bankruptcy.
Creditors generally oppose bankruptcy in any form, because it would make it easier for Puerto Rico to cut their repayments.
(Reporting by Nick Brown; Editing by Leslie Adler)
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