Moody’s Investors Service on Friday became the second rating agency this week to cut Puerto Rico’s credit rating to junk, citing concern about Puerto Rico’s weak economy and its deteriorating ability to borrow.
Moody’s said it now rates the commonwealth’s general obligation bonds at Ba2, two notches below investment grade and one step deeper into junk territory than Standard & Poor’s.
PR has some $70 billion of debt outstanding - nearly four times the $18 billion owed by bankrupt Detroit. If markets push rates too high on PR debt, making it prohibitive for PR to raise money in the markets, the US territory will have to either be bailed out by the US or restructure its debt, that is, go in bankruptcy.
With many US muni bond funds holding PR debt, there will be tremendous pressure put on legislators by sectors of Wall Street to bail out PR.
Stay tuned.
The fact that Moody's still has US debt rated AAA tells you all you need to know.
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