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Global Credit Research - 08 Jun 2010
Mexico City, June 08, 2010 -- Moody's de Mexico has assigned a rating of Aaa.mx (Mexico National
Scale) and Moody's Investors Service assigned a rating of Baa1 (Global
Scale, local currency) to Distrito Federal's (Mexico City)
upcoming MXN 2 billion bond issue (Certificados Bursátiles).
The bond issue will be structured, subject to investor interest,
according to one or a combination of the following proposals up to MXN
- Proposal I: Mexican pesos, 5 year maturity,
monthly debt service payments based on interest rate composed of the 28-day
Mexican Interbank Interest Rate (TIIE in Spanish) plus a spread to be
determined at closing.
- Proposal II: Mexican pesos, 10 year maturity,
bullet principal payment at maturity, twice annual interest payments
based on a fixed interest rate to be determined at closing.
- Proposal III: UDIS (Investment units indexed to inflation)
equivalent in pesos, 15 year maturity, 10 year grace period
for principal payments, twice annual interest payments based on
a fixed interest rate to be determined at closing.
The ratings assigned are based on documentation received by Moody's as
of the rating assignment date. In the event that the structures
change from the documentation submitted to us, Moody's will assess
the impact that these differences may have on the ratings and act accordingly.
Although the Federal District (DF) is contractually obligated to meet
debt service payments on the bonds, the Government of Mexico (Baa1/Aaa.mx)
is the ultimate obligor of these credits, as with all other debt
of DF. Accordingly, the ratings assigned to this transaction
reflect the credit quality of the federal government.
Under the current legal framework governing the financial affairs of the
Distrito Federal (Mexico City), the Government of Mexico (Baa1/Aaa.mx)
is the effective obligor for all debt issued by DF. Firstly,
on an annual basis, the federal congress approves a debt ceiling
for DF and sanctions its borrowings in the federal budget. Second,
DF must seek approval from the Federal Treasury Ministry (Secretaría
de Hacienda y Credito Público, or SHCP) to issue specific
bonds. Third, once this approval has been obtained,
it has been the practice that the SHCP contracts the debt, with
the DF acting as co-signer on all documentation. Fourth,
debt proceeds are then passed on to DF and DF assumes direct responsibility
for paying debt service. Fifth and throughout this process,
the federal government remains the ultimate obligor for all of DF's
In addition to these institutional features, the Baa1/Aaa.mx
ratings also take into account the following legal and credit enhancements
embedded in the planned bond issuance:
1. Validity of the legal authorization of the transaction,
which authorizes the Master Trust to be used as a mechanism for debt service
2. Strong trust structure based on an irrevocable notification
to Federal Treasury to transfer the rights and flows of federal participation
transfers to the Master Trust (Deutsche Bank as trustee) and then distributed
to a bond specific trust (Bank of New York Mellon as trustee).
3. Estimated cash flows generate strong multiple times debt service
coverage ratios under both Moody's base case and stress scenarios.
The rating rationale also recognizes the following credit challenges:
- This transaction shares participation revenues with other debt
obligations on a pari-passu basis and in the future the DF will
incorporate new obligations to this trust. Nevertheless,
historical performance for obligations already in the Master Trust has
been very strong and we expect this to remain the case going forward.
- The trust structure for these bonds requires that the Master
Trust transfers monthly participation revenues to a bond specific trust.
While this adds a layer of complexity, risks are offset by 1) DF's
strong track record of executing similar debt financings, 2) the
solid history of both trustees in the local market and 3) the robust historical
performance of all current obligations paid via the Master Trust.
This MXN 2 billion bond is the first of three bond issues (totaling approximately
MXN 5 billion) expected to be issued in 2010.
The last rating action with respect to Distrito Federal was taken on November
21, 2006, when debt ratings of Baa1 (Global Scale, Local
Currency) and Aaa.mx (Mexico National Scale Rating) were assigned
to Distrito Federal's MXN 1.4 billion bond issuance.
The principal methodologies used in rating Distrito Federal were "Sovereign
Bond Ratings" and "Regional and Local Governments Outside the US",
published respectively in September 2008 and May 2008 and available on
www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found in the Rating Methodologies subdirectory on Moody's website.
Maria del Carmen Martinez-Richa
Asst Vice President - Analyst
Moody's de Mexico S.A. de C.V
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Assigns Ratings of Baa1 and Aaa.mx to Distrito Federal's Upcoming MXN 2 Billion Bond Issuance (Certificados Bursátiles)
No Related Data.
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