Mexico, January 31, 2011 -- Moody's de Mexico has assigned a debt rating of A1.mx (Mexico National
Scale) to the State of San Luis Potosí's MXN 2.68
billion enhanced loan from Banorte. Moody's Investors Service has
assigned a debt rating of Ba1 (Global Scale, local currency) to
The MXN 2.68 billion enhanced loan was contracted in March 2008
to refinance the state's total outstanding debt. It is denominated
in Mexican pesos, with maturity of 20 years, and pays an interest
rate composed of the 28-day Mexican Interbank Interest Rate (TIIE)
plus a spread of 45 basis points. The master trust created in 2002
used Banco del Centro as the trustee. Since then, Banco del
Centro merged with Banorte and the trustee became Banorte (# 035278-6).
In order to avoid the conflict of interest of having the lender and trustee
as the same legal entity, the state and the lender agreed to create
another second trust (Casa de Bolsa Banorte # 35369-3).
The second trust receives debt service payments for the MXN 2.48
billion loan from the Banorte master trust to which the State has pledged
the flows of 40% of its participation revenues.
The Ba1/A1.mx ratings assigned to the loan reflect the underlying
creditworthiness of the State of San Luis Potosí (Ba3/A3.mx),
supported by the following legal and credit enhancements embedded in the
1. Trust structure based on an irrevocable notification to the
federal treasury regarding the transfer of rights and flows of participation
revenues to the master trust (Banorte).
2. Very strong historical average debt service coverage of the
loan: 9.1x during 2009 and 2010
3. Solid debt service coverage ratios, under a Moody's base
case scenario estimated cash flows generate 4.6x debt service coverage
at the lowest point during the life of the loan. Under a stress
case scenario, estimated cash flows provide 3.7x debt service
coverage, at the lowest point during the life of the loan.
4. Solid level of reserve funds that represent 2.0x debt
service coverage over the life of the loan and provide a solid cushion
against payment delays.
The rating rationale also recognizes the following credit challenges that
arise fromthe loan´s relatively more complex structure— as
a result of the presence of two trusts to pay debt service to the lender—compared
to peer enhanced loan structures rated by Moody's.
1. Legal risks may arise because of the possibility of a third
party trying to invalidate the transaction given that the authorization
for the State to contract the loan, pledge participation transfers
and pay debt service through a trust, focuses on the creation of
the first master trust (now Banorte), rather than the second Casa
de Bolsa Banorte trust. We view, however, related risks
to be in-line with the current ratings level for the following
reasons: a) in general terms, given the date in which the
transaction was concluded, the presentation of a claim before the
Supreme Court would exceed the established periods for doing so,
and b) court decisions are generally guided by the constitutional principle
of non retroactivity, meaning that the loan would likely not be
deemed invalid as an active obligation, which has been confirmed
by recent Supreme Court decisions.
2. The trust structure creates a certain degree of commingling
risks (possibility of diverting cash flows from within the trusts ).
We view related risks to be compensated by the following consideration:
a) any modification to the current structure, in order to divert
cash flows, would need the agreement of the three parties involved,
and b) our view on Banorte's self-interest to ensure that
the cash flows are transferred in a timely manner to pay debt service.
3. The relative complexity of the trust structures creates operational
risks. We view these risks to be offset by the very strong historical
track record of loan performance, which is underpinned by Banorte's
smooth handling of cash flows.
Last rating action was made in August 31, 2010, when Moody's
assigned issuer ratings of Ba3 (Global Scale) and A3.mx (Mexico
National Scale) to the State of San Luis Potosí
The principal methodologies used in this rating were Regional and Local
Governments Outside the US published in May 2008, and 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."
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and 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.
Maria del Carmen Martinez-Richa
Asst Vice President - Analyst
Moody's de Mexico S.A. de C.V
MD - Sub-Sovereigns
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's de Mexico S.A. de C.V
Moody's Assigns Debt Ratings to a MXN 2.68 billion Enhanced Loan of the State of San Luis Potosí
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000