Standard & Poor's downgraded Puerto Rico's general obligation rating to "CCC+" from "B."
The ratings agency said the downgrade—issued late Friday and announced again Monday morning—was based on its view that "the commonwealth's market access prospects have further weakened and Puerto Rico's ability to meet its financial commitments is increasingly tied to the business, financial, and economic conditions on the island."
It also placed the general obligation rating on CreditWatch negative.
S&P additionally lowered its ratings on Puerto Rico Sales Tax Financing Corp.'s (COFINA) first-lien and second-lien sales tax bonds to "CCC+" from "B." Other bonds, including those from the Puerto Rico Municipal Finance Agency and the Puerto Rico Employees Retirement System, were also downgraded with a negative outlook.
The ratings firm said that, absent improvements in the economic and business conditions in Puerto Rico, its analysts believe that "debt and other financial commitments will be unsustainable."
In its downgrade announcement, S&P cited its view that there is a lack of consensus on important parts of the 2016 budget which could "exacerbate liquidity and fiscal pressure." The firm said it expects to resolve the CreditWatch within three months when the budget is enacted.
S&P warned, however, that a delayed or flawed budget could result in an additional downgrade to "CCC" or lower.
A recent letter from Puerto Rico's Government Development Bank to its Governor warning of impending liquidity problems unless the government enacts a budget and begins tax reform. S&P wrote that the very existence the GDB letter "indicates liquidity stress."