--Commonwealth general obligation (GO) bonds;
--Employees Retirement System of the Commonwealth of
The ratings have been removed from Rating Watch Negative; however, the Rating Outlook, which indicates the direction the ratings are likely to move over a one- to two-year period, is Negative.
The current action does not affect the ratings that Fitch assigns to bonds issued by the
The GO bonds are a full faith and credit obligation of the Commonwealth of
KEY RATINGS DRIVERS
REDUCED FINANCIAL FLEXIBILITY PROMPTS DOWNGRADE: Fitch placed the GO and related ratings on Negative Watch in
FISCAL MANAGEMENT EFFECTIVE AND COMMITTED: The commonwealth's management has responded quickly and decisively to challenges that have arisen in recent years and the current administration has made significant progress in addressing longstanding credit issues. Fitch believes the commitment of management to achieving fiscal balance and honoring commitments to bondholders remains strong, and the governor recently announced a plan to balance the budget next year, one year earlier than previously expected.
ECONOMIC PERFORMANCE THE KEY FACTOR: The commonwealth's economy has been in recession since 2006. Initial signs of recovery in 2012 appear to have been more a reflection of economic stimulus than underlying growth and subsequent economic performance has been weak. Although some recent information suggests nascent improvement, results are mixed and it is too soon to tell whether the economy will stabilize this year. Fitch believes that the ultimate success of efforts to put the commonwealth's finances on a sustainable path will be dictated by the performance of the economy.
DEBT AND RETIREE BENEFIT LIABILITIES HIGH:
MARKET ACCESS IMPAIRED: The commonwealth's capital markets access deteriorated steeply in 2013 despite the action taken to address longstanding credit challenges. Reliable external market access in line with market norms is important to long-term stability.
MARKET ACCESS: The current rating assumes that the commonwealth will be able to execute a sizable transaction in the near term to bolster liquidity. An inability to access the market would be a significant credit concern and cause for a downgrade.
EVIDENCE OF ECONOMIC STABILIZATION: Maintenance of the current rating will require stabilization in economic performance and emergence from the long recessionary period.
ACHIEVABILITY OF BUDGET TARGETS: Failure to show continued progress toward structural balance would pressure the rating.
The commonwealth subsequently took numerous measures to bolster finances and strengthen fundamental credit factors. However, in the same period, the capital markets environment for the commonwealth's debt deteriorated considerably. In addition, economic indicators continued to show material weakness, and the commonwealth reduced its forecast for economic performance. In
Since that time, the administration has taken additional steps to support the credit, including enactment of teachers' pension reform, various measures to improve GDB liquidity, and numerous economic development initiatives. Spending is reportedly under budget, and the commonwealth recently announced a reduction in the deficit forecast for the current and coming fiscal years. On the downside, the sales tax changes included in the current-year budget have failed to produce the expected additional revenues. The
Last week's downgrades have triggered potential new liquidity demands of about
Additional information is available at 'www.fitchratings.com'.
--'Fitch Places Puerto GO and Related Debt Ratings on Rating Watch Negative' (
--'Tax-Supported Rating Criteria' (
--'U.S. State Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. State Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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