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16 Mar 2005
MOODY'S ASSIGNS Baa1.mx ISSUER RATING TO THE MUNICIPALITY OF CHICOLOAPAN DE JUAREZ
New York, March 16, 2005 -- Moody's Investors Service has assigned Baa1.mx (Mexico National
Scale) and B1 (Global scale, local currency) issuer ratings to the
Municipality of Chicoloapan de Juarez. The ratings incorporate
the expectation of some borrowing which could place pressure on the municipality's
delicate financial balance in the next twelve to eighteen months.
The ratings also reflect anticipated economic and population growth that
should generate increased budgetary revenues, most of which however
will be absorbed by higher demand for municipal services.
At the end of 2004, the municipality had $9 million in debt,
or approximately 8% of revenues for the year. The municipality
expects to borrow an additional $5 million this year and to amortize
it through 2006, although it has approval for loans in the amount
of $80 million. In addition, the municipality estimates
that it will need $15-$20 million in 2006 to complete
necessary capital projects. If this borrowing occurs, it
is estimated that debt service would peak in 2007 and absorb about 6-8%
of the budget. This amount of debt service could put some pressure
on a budget which has already strained to meet lower debt service levels
in the recent past. The situation could become more manageable
with the implementation of cost containment and revenue raising measures.
The municipality has other financial obligations in the form of significant
past due amounts owed to the electric power provider (Luz y Fuerza del
Centro) and, to a smaller extent, the state's pension
Financial results for the period reviewed have been mixed, with
financing deficits recorded in two of the four years between 2000 and
2003. The deficits appear to be in due in great part to overspending
on capital projects that were expected to be covered by a state-sponsored
program (PIE), but the funds did not arrive in the corresponding
year. Preliminary results for 2004 indicate a modest financing
deficit when the total amount spent for capital is accounted. It
is noted that official year-end results underestimate the imbalance
in the municipality's financial situation, as they fail to
include payments which should have been made to service providers such
as Luz y Fuerza del Centro.
Own source revenues represent approximately one-third of the entity's
total revenues, which is slightly below the median for rated municipalities
in Mexico. Their growth has been uneven with large increases in
one year followed by a decrease in the next, primarily because of
contributions from developers in years in which there are large development
projects. Rapid population growth is likely to result in higher
own source revenues given the ongoing plan to update the city's
tax rolls. However, the higher demand for services and the
need for updated and new infrastructure are likely to absorb these gains
and result in continued pressure on the municipal budget.
Year-end liquidity levels (on a net cash basis) are weak,
averaging a cash requirement of approximately three months of the budget
in 2002 and 2003, with an improvement in 2004 to one-and-a
half month's of revenues. It is noted that the municipality
received an advance in pariticipaciones from the State of Mexico at the
end of 2004 to meet year-end liquidity needs.
The Municipality of Chicoloapan de Juarez is located approximately 30
miles east of the Distrito Federal and is just south of the Municipality
of Texcoco (rated Baa1.mx/Ba3). Chicoloapan is a relatively
low income bedroom community of the Distrito Federal, and the majority
of persons living here commute to the D.F. for work.
The local economy is limited and consists mainly of the production of
construction materials and some commercial activity, the latter
of which appears to be expanding although at a fairly slow pace.
The 2000 census reports a population of 77,000 residents,
although the municipal officials estimate that the city now has over 150,000
residents. Rapid population growth has been the result of a rise
in the construction of a large number of affordable housing units within
the city limits, a trend which is expected to continue and further
drive the development of the municipality.
Moody's issuer ratings are opinions of the ability of entities to honor
their senior unsecured financial obligations, that is, without
incorporating credit support derived from the use of federal revenue-sharing
(participaciones) or other resources as collateral. Moody's will
assign ratings (Mexico National Scale) evaluating the additional credit
support provided to the municipality's borrowings by such collateral guarantees
or trust agreements, as these are developed.
Moody's Mexico National Scale ratings are opinions of the relative creditworthiness
of issuers and issues within Mexico. The Moody's Global Scale rating
for borrowings in local currency allows investors to compare the state's
creditworthiness to all other issuers in the world rather than solely
in Mexico. It incorporates all Mexico-related risks,
including the potential volatility of the Mexican economy. For
comparative purposes, Moody's Global Scale, Local Currency
rating for domestic debt issued by the Mexican government is Baa1.
Senior Vice President
Financial Institutions Group
Moody's Investors Service
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
No Related Data.
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