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Rating Action:

Moody's Assigns Baa3/Aa3.mx debt ratings to an enhanced loan of the State of Quintana Roo's Instituto para el Desarrollo y Financiamiento (IDEFIN) contracted with HSBC

 The document has been translated in other languages

01 Apr 2011

MXN 600 million debt affected

Mexico, April 01, 2011 -- Moody's de Mexico has assigned debt ratings of Aa3.mx (Mexico National Scale) and Baa3 (Global Scale, local currency) to a MXN 600 million enhanced loan contracted by the State of Quintana Roo's Instituto para el Desarrollo y Financiamiento (IDEFIN) with HSBC, which has been on-lent to the State of Quintana Roo.

In the case of this loan, IDEFIN has on-lent the proceeds to the State of Quintana Roo, based on mirror contracts, and the state will service the loan via federal participation transfers. In the loan contract, the State of Quintana Roo has pledged 7% of its federal participation revenues to a trust (Banco Santander, F/2001613), which will be used as a mechanism for debt service payment. This loan will share a master trust with eight other loans, each backed by a defined percentage of participation revenues. In case that participation revenues are not sufficient for paying debt service on any of the loans, the state has the obligation to send additional revenues to the trust in order to make up the shortfalls.

The loan is denominated in Mexican pesos, with maturity of 15 years and a grace period of up to 18 months for principal payments. The loan will pay an interest rate composed of the 28-day Mexican Interbank Interest Rate (TIIE) plus 175 basis points. Proceeds will be used for infrastructure projects.

RATINGS RATIONALE

The Baa3/Aa3.mx ratings assigned to the loan reflects the underlying creditworthiness of the State of Quintana Roo (Ba2/A2.mx) supported by the following legal and credit enhancements embedded in the loan contracts:

1. Strong trust structure based on an irrevocable notification to the federal treasury (TESOFE) to transfer the rights and flows of participation revenues to the trustee, eliminating commingling risk.

2. Solid level of reserve funds that provide 3x debt service coverage over the life of the loan, constituting a cushion against payment delays.

3. Estimated cash flows generate solid debt service coverage ratios. Under a Moody's base case scenario, cash flows for the loan are projected to provide 3.3x debt service coverage at the lowest point during the life of the loan. Under a Moody's stress case scenario, estimated cash flow for the loan are projected to provide 3.0x debt service coverage at the lowest point during the life of the loan. Debt service coverage projections consider an interest rate CAP for the first three years of the life of the loan contracted by the State of Quintana Roo. The other loans in the master trust have displayed strong historical cash flows resulting in an average debt service coverage of 5.5x times during 2009 and 2010, a period that includes a deep fall in participation transfers.

4. In the event that the underlying loan contracts between IDEFIN and the State of Quintana Roo were to be annulled or not respected, IDEFIN would not have any available revenues to pay debt service on the HSBC loan. However, this risk is offset by the state's moral obligation, which arises from the IDEFIN's role as the financing arm of the state, and the fact that the State of Quintana Roo's instructions to TESOFE are irrevocable.

A downgrade of the State of Quintana Roo's issuer rating could exert downward pressure on debt ratings for this loan.

Overview of IDEFIN

IDEFIN is a public decentralized entity of the State of Quintana Roo, created on October 6, 2006. Its purpose is to assist the state, its municipalities, and decentralized entities in accessing credit. As such, IDEFIN can act as a lender, borrowing from financial institutions or the market and then on-lending to the state or another entity. Depending on the loan contract, IDEFIN covers debt service obligations using revenues that flow from these entities.

The last rating action with respect to IDEFIN and the State of Quintana Roo was taken on February 10, 2011, when Baa2/Aa2.mx ratings were assigned to the following two state loans:

- Scotiabank: MXN 700 million

- Banorte: MXN 700 million

The principal methodologies used in these ratings were Regional and Local Governments Outside the US, published in May 2008, The Application of Joint Default Analysis to Regional and Local Governments, published in December 2008, and Enhanced Municipal and State Loans in Mexico, published in January 2011.

Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".mx" for Mexico. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Implementation Guidance published in August 2010 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings."

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Mexico
Roxana Munoz
Associate Analyst
Sub-Sovereign Group
Moody's de Mexico S.A. de C.V
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

London
David Rubinoff
MD - Sub-Sovereigns
Sub-Sovereign Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Moody's Assigns Baa3/Aa3.mx debt ratings to an enhanced loan of the State of Quintana Roo's Instituto para el Desarrollo y Financiamiento (IDEFIN) contracted with HSBC
No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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​
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