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Moody's downgrades Puerto Rico GO debt rating two notches to 'junk' status

Reuters with CNBC.com
Friday, 7 Feb 2014 | 1:45 PM ET

Moody's Investors Service downgraded Puerto Rico's general obligation debt rating to junk status on Friday, days after S&P made the same move on the island commonwealth's debt.

"The problems that confront the commonwealth are many years in the making, and include years of deficit financing, pension underfunding, and budgetary imbalance, along with seven years of economic recession," Moody's said, adding that the island's challenges meant it no longer merited an investment-grade rating.

Moody's on Friday cut Puerto Rico's credit rating to junk status, citing concerns about the fiscally challenged U.S. territory's weak growth and ability to access capital markets.

(Read more: US mutual funds unload on Puerto Rico debt)

The rating agency placed Puerto Rico's rating on notice for a downgrade late last year and said it now rates the commonwealth's general obligation bonds at Ba2, two notches below investment grade status.

With some $70 billion of tax-free debt, Puerto Rico has long struggled with recession and has for months been under threat of a ratings downgrade to junk-bond territory by all three U.S. credit ratings agencies. Standard & Poor's cut the island's rating to junk on Tuesday.

Moody's said Puerto Rico's economic malaise, underfunded pension obligations and high deficit ``have now put the commonwealth in a position where its debt load and fixed costs are high, its liquidity is narrow, and its market access has become constrained.''

Moody's also cut its ratings on the island's sales-tax supported senior lien COFINA bonds to Baa1 from A2.