If you dig a little deeper than what is generally reported on the S&P downgrade of Puerto Rico, a few facts seem to diverge from the conventional story line. The most important relates to the “liquidity” of the Puerto Rico’s government and its fiscal agent the Government Development Bank (GDB).

Puerto Rico officials have made repeated statements about the commonwealth’s liquidity and market access, saying that it has adequate funds to make all repayments required through June 30. They repeated these statements on February 4 in a press release:

‘We are confident that we have the liquidity on hand to satisfy all liquidity needs until the end of the fiscal year, including any cash needs resulting from today’s decision. In addition, the GDB and the Commonwealth of Puerto Rico have been in discussions with parties that have expressed an interest in arranging additional liquidity for the Commonwealth, and the Commonwealth continues to explore such options, including obtaining additional funding, as necessary.’

Standard & Poor’s GDB analyst said on a February 4 webcast discussing its downgrade of Puerto Rico that it “had expected a [bond] offering last fall and didn’t happen so their access has been constrained.” Reuters reported:

The timing of S&P’s downgrade, coming just 11 days after the agency announced a review, was unexpected. Analysts at Moody’s have been reviewing the island’s finances for a possible downgrade since Dec. 11 and have yet to finish. ‘If we have enough information to take action, we have to release it; otherwise we’re holding onto inside information,’ [S&P’s] Hitchcock said in an interview. ‘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.’

S&P’s view of Puerto Rico’s market access and liquidity appears less positive than the official view. The large public offering expected in the fall was never completed, but, according to press accounts, it could be brought to market in the coming weeks.

Meanwhile, the GDB is searching everywhere to increase liquidity. El Nuevo Día, the most widely read newspaper in Puerto Rico, reported that the GDB is asking for loans from Puerto Rico banks, trying to get refinancing and forbearance on outstanding loans and bonds from local creditors and trying to sell real estate holdings.

According to El Nuevo Día, the GDB and the Corporation for Insurance Supervision of Cooperatives (COSSEC) have asked unions to refinance about $ 77.5 million in bonds due this fiscal year. It is in talks with local banks to borrow up to $ 575 million to help manage cash flow at the GDB and other public agencies.

El Nuevo Día also reported intensified efforts to sell various properties owned by the state, offering them to investment funds, including the renowned investor John Paulson and to Caribbean Property Group (CPG).

It is often overlooked that Puerto Rico borrowed at least nine times in 2013, raising at least $1.9 billion on exceedingly onerous terms. Only one of these borrowings was in the public markets, according to documents filed with the MSRB’s EMMA system (table below). The last borrowing made in December was internal to the government when the GDB borrowed $110 million in Senior Guaranteed Notes from the Puerto Rico State Insurance Fund Corporation. This deal was done at 8 percent for four to six-year maturities.

Bloomberg totaled Puerto Rico’s borrowings for 2013 at $667 million, but appears to have only counted the August 21 Puerto Rico Electric Power Authority deal. This deal is the only Puerto Rico borrowing for 2013 that had an Official Statement filed for it. The rest were placed privately and had no public documents. It’s odd that almost 90 percent of Puerto Rico’s 2013 borrowings had no documentation. This is worrying for a “public” issuer and provides little information for the market to value and trade Puerto Rico’s securities.

We can see that the Government Development Bank borrowed short-term funds on July 9th at 11.75 percent due 12/15/13. These borrowing terms suggest extreme liquidity problems.

Puerto Rico’s crushing debt load rests on an economy that continues to contract. The GDB has not reported the Economic Activity Index for December, so we don’t know how much more the economy has contracted. Puerto Rico’s data points are few and they are not positive.

The Government Development Bank for Puerto Rico announced that it will host an investor webcast with representatives from the Treasury and the Office of Management and Budget on February 12.