Puerto Rico's new debt law is a credit negative for financial guarantors, Moody's Investors Service said.
"We view the probability of a Puerto Rico default as substantially more likely than we did several months ago, although it remains unclear what the potential loss severity among the various Puerto Rico related issuers would be if a default (or defaults) were to occur," Moody's said in its Credit Outlook report Monday.
The new law is a credit negative for Assured Guaranty Ltd., MBIA Inc., and Radian Group Inc., which have exposure in the territory, Moody's said.
Governor Alejandro Garcia Padilla signed the Puerto Rico Public Corporations Debt Enforcement and Recovery Act into law last week. The measure enables corporations such as the Puerto Rico Aqueduct and Sewer Authority, the Puerto Rico Electric Power Authority and the Puerto Rico Highway and Transportation Authority to negotiate debt terms with bondholders or to restructure the debt with the approval of the local court.
The law may be most applicable to PREPA, with its significant near-term liquidity needs, Moody's said. Although both PRASA and HTA have a significant amount of leverage and borrowing needs, they have less immediate liquidity needs.
According to Moody's the aggregate exposure to Puerto Rico credits has exceeded 140% of qualified statutory capital for National Public Finance Guarantee and Assured Guaranty as of the end of March. PREPA exposure has reached 46% of qualified statutory capital for National Public Finance Guarantee.
Berkshire Hathaway Assurance Corp. has limited exposure to Puerto Rico, while Build America Mutual and Municipal Assurance Corp. have none, Moody's said.
The rating agency predicts that "further deterioration in Puerto Rico's credit profile would only increase investors' concerns."
