Standard & Poor's review of confidential information on Puerto Rico's finances led the ratings agency to make an unusually rapid downgrade of the U.S. commonwealth's debt, less than two weeks after warning the rating was at risk, its lead analyst said on Tuesday.
David Hitchcock said he felt he could not wait for a potentially large bond offering of $1 billion or more that the Caribbean island aims to put together in the coming weeks.
S&P now rates the commonwealth at "BB+," or one level below investment grade. That may oblige some institutional investors to dump holdings of Puerto Rico's high-yielding debt and avoid buying any of its bonds during the upcoming debt sale.
Hitchcock, who had placed Puerto Rico on watch for a likely downgrade on Jan. 24, said the decision was based on "confidential information" on the Government Development Bank (GDB) that had given rise to fresh concerns about cash flows and liquidity.
"We do have confidential information on GDB cash flows and liquidity and based on the information that we do have, we feel that we had to take action," Hitchcock said in an interview after the decision on Tuesday.
He did not say what the information was that had led the agency to downgrade the island.
Puerto Rico's finance officials had been in New York last week, briefing ratings agencies on the island's financial and economic situation.
Ratings agencies usually take up to 90 days to follow through with a ratings action after warning issuers of a possible change in ratings.
S&P's downgrade may be followed by the other two big ratings agencies, Fitch and Moody's. S&P's quick downgrade of Puerto Rico was a surprise because it had been the last of the big three to put the island on a credit watch.
Hitchcock said that he did not believe the downgrade would create a systemic risk to the muni market. Some Puerto Rico municipal bond yields rose above 10 percent following the downgrade on Tuesday afternoon.
"Currently we are operating under the assumption that there's not a systemic risk from this action," said Hitchcock.
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