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Announcement:

Credit Implications Related to Hurricane Alex Appear Limited for Public Sector Entities, Nevertheless a High Degree of Uncertainty Remains

 The document has been translated in other languages

08 Jul 2010

Mexico City, July 08, 2010 -- Last week, Hurricane Alex, a category 2 windstorm hit Northern Mexico, causing intense rain and widespread flooding in the States of Nuevo León and Tamaulipas. While a full assessment of the damages has not yet been finalized by public officials, Moody's anticipates that the credit implications of the hurricane will likely be limited for rated entities in the region, given a) the expected low impact on long-term economic growth and b) federal emergency funding via FODEN (Federal Natural Disaster Fund) that will ease related financial pressures. Nevertheless, given uncertainties surrounding the full magnitude of damages, and risks related to a current tropical depression that made landfall in Northern Mexico earlier today, which is increasing already high water levels, Moody's will continue to monitor developments as they arise and assess related credit risks.

Public sector entities rated in the region are:

- State of Nuevo León : Baa3 (Global Scale, local currency) and Aa3.mx (Mexican National Scale), negative outlook

- Municipality of Monterrey: Ba1 and A1.mx, stable outlook

- Municipality of San Pedro Garza García: Baa3 and Aa3.mx, stable outlook

- Servicios de Agua y Drenaje de Monterrey (SADM, State Water and Sewer Company of Nuevo León): Baa3 and Aa3.mx, stable outlook

- Autopista Monterrey-Cadereyta: Baa2 and Aa2.mx, stable outlook

- State of Tamaulipas: Baa3 and Aa3.mx, stable outlook

- Municipality of Ciudad Victoria: Ba2 and A2.mx, stable outlook

- Municipality of Matamoros: Ba1 and A1.mx, stable outlook

- Municipality of Reynosa: Ba2 and A2.mx, stable outlook

- Municipality of Tampico: Ba2 and A2.mx, stable outlook

Moody's considers that the credit implications of the hurricane on the ratings of the States of Nuevo León and Tamaulipas, the Municipalities of Monterrey, San Pedro Garza García, Matamoros, Reynosa, Ciudad Victoria and Tampico and SADM, will likely be limited.

"The metropolitan area of Monterrey, in the State of Nuevo León, was particularly hard hit, with severe damages to public and private infrastructure, however, damages in the Municipality of San Pedro Garcia appear relatively less severe," says María del Carmen Martínez-Richa, Assistant Vice President in the Sub-Sovereign Group and lead analyst for these entities. Although a complete official assessment of the damages has not yet been completed, the Governor of Nuevo León has estimated costs at approximately MXN 10 billion (approximately 22% of total state revenue in 2009). In the case of SADM, some water and sewer infrastructure was damaged and state officials have announced a temporary reduction in tariff rates.

Despite these challenges, Moody's anticipates that the credit implications for these entities will likely be limited, as a result of the low expected impact on long-term economic growth and the availability of federal emergency funding via FODEN (Federal Natural Disaster Fund), which is expected to ease financial pressures on these entities. A negative outlook on the State of Nuevo León's issuer ratings was assigned on June 29, 2010, to reflect weakening financial results. This action is not a result of these recent events.

Also within the State of Nuevo León, the flow of traffic on the Autopista Monterrey-Cadereyta toll road has been interrupted along the main route by the flooding in the metropolitan area, while damage has also occurred to urban routes that feed into the toll road. Additionally, toll collections were suspended starting last Saturday to allow for easier access in and out of the city. "We anticipate that, barring other unexpected interruptions, the Autopista Monterrey-Cadereyta will resume more normal operations within a reasonable period of time, and its ability to meet timely debt service payments will not be hampered, especially given the 12-month debt service reserve," says Laura Barrientos, Senior Credit Officer in the Global Infrastructure and Project Finance Group. "Nonetheless, we will continue to monitor traffic and revenue activity, along with reconstruction efforts of the urban transportation infrastructure."

The State of Tamaulipas, located to the east of Nuevo León on Gulf of Mexico, is currently in the process of evaluating the damage caused in 19 municipalities, including Matamoros, Reynosa and Ciudad Victoria. "Preliminary reports, however, indicate that water levels in local dams are very high, which may lead to further infrastructure damages depending on the intensity of current rainfalls," says Roxana Muñoz in the Sub-Sovereign Group, Associate Analyst and lead analyst for these entities.

Given uncertainties surrounding the full magnitude of damages and risks related to a current tropical depression that just made landfall in Northern Mexico, Moody's will continue to monitor developments as they arise. As the situation becomes clearer, Moody's will assess the credit implications of any further, or currently unforeseen, developments, paying particular attention to: a) the nature and magnitude of the damages as quantified by official assessments, b) any structural damage to long-term economic activity and c) financial actions of the three levels of government, including the speed of emergency funds, to redress the situation.

Mexico City
Maria del Carmen Martinez-Richa
Asst Vice President - Analyst
Sub-Sovereign Group
Moody's de Mexico S.A. de C.V
Telephone:+52-55-1253-5700

New York
Laura Barrientos
VP - Senior Credit Officer
Project Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Credit Implications Related to Hurricane Alex Appear Limited for Public Sector Entities, Nevertheless a High Degree of Uncertainty Remains
No Related Data.
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