S&P downgrades Puerto Rico, says hit would have been worse without government reforms

Associated Press + More

By JOSH BOAK, AP Economics Writer

Credit agency Standard & Poor's downgraded Puerto Rico's debt to junk status on Tuesday.

As the U.S. territory prepares to return to the bond market this month, S&P cut its rating one notch to "BB+." That is one level below investment grade.

Puerto Rico has entered its eighth year in recession, while struggling with $70 billion in public debt and a 15.4 percent unemployment rate, higher than any U.S. state.

S&P says the downgrade would have been more severe without the reductions to island's budget deficits and reform of its crumbling public pension systems by Gov. Alejandro Garcia Padilla.

Puerto Rico's bonds are popular with U.S. investors because they are exempt from federal, state and local taxes. But investors have become increasingly concerned about its ability to repay its debt.

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