Mexico, April 01, 2011 -- Moody's de Mexico downgraded to Aa3.mx from Aa2.mx (Mexican
National Scale) and to Baa3 from Baa2 (Global Scale, local currency)
the ratings assigned to seven enhanced loans of the State of Quintana
Roo's Instituto para el Desarrollo y Financiamiento (IDEFIN),
which have been on-lent to the State of Quintana Roo (original
face values cited):
Banamex: MXN 300 million
Banco Interacciones: MXN 400 million
Banorte: MXN 504.7 million
Banorte: MXN 700 million
HSBC: MXN 1.118 billion
Scotiabank: MXN 286.5 million
Scotiabank: MXN 700 million
In the case of these seven loans, IDEFIN has on lent the proceeds
to the State of Quintana Roo, based on mirror contracts, and
the state will service the loans via federal participation transfers.
Each of the rated loans is secured solely by IDEFIN's rights under
the respective loan agreements it has with the State. In the loan
contracts between IDEFIN and the State, Quintana Roo has pledged
a specific portion of its federal participation revenues that varies for
each loan to a master trust (Banco Santander, F/2001613) that is
shared by all seven of the loans to meet related obligations and functions
as a debt service payment mechanism.
The downgrade of the debt ratings reflects the recent downgrade of the
issuer ratings of the State of Quintana Roo to Ba2/A2.mx from Ba1/A1.mx,
which took into account the recent deterioration of the state's
financial performance. This deterioration, in Moody's view,
increases underlying contract enforcement risks, economic risks
and credit culture risks that may impact loans performance in the future.
The Baa3 and Aa3.mx debt ratings assigned to the seven enhanced
loans also reflect the following credit enhancements:
1. Strong trust structures based on an irrevocable notification
to the federal treasury to transfer the rights and flows of participation
revenues to the trustee for each loan, eliminating commingling risk.
2. These loans have displayed strong historical cash flows resulting
in an average debt service coverage for all the loans within the master
trust of 5.5x times during 2009 and 2010, a period that includes
a deep fall in participation transfers. Moody's projects
that cash flows will continue to generate strong coverage ratios.
Minimum projected debt service coverages correspond to the MXN 504.7
million enhanced loan with Banorte. Under a Moody's base case scenario,
cash flows for this loan are projected to provide 2.0x debt service
coverage at the lowest point during the life of the loan. Under
a Moody's stress case scenario, estimated cash flow for this loan
are projected to provide 1.7x debt service coverage at the lowest
point during the life of the loan.
3. Solid level of reserve funds that provide a minimum 2x debt
service coverage over the life of each of the loans, constituting
a cushion against payment delays.
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 these
loans. 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.
5. The Baa3/Aa3.mx debt ratings assigned to Quintana Roo's
MXN 300 million enhanced loan contracted with Banamex were placed under
review for a possible downgrade on January 27, 2011, reflecting
the existence of an open cross default clause, which covers senior
unsecured debt outside of the trust and could potentially trigger the
early amortization of the loan, exposing the state to refinancing
risks. This rating remains under review. Moody's expects
to conclude the review by the end of April.
If the early amortization cross default clause is removed via an addendum
to the loan contract, the downward rating pressure for the Banamex
MXN 300 million enhanced loan would be alleviated and we would confirm
the current ratings. If the state leaves the clauses in place,
Moody's expects that we would lower the ratings to the level of
the state's issuer ratings.
6. While some other loan contracts contain limited cross default
clauses, risks related to these clauses are mitigated by the fact
that these clauses are related to senior secured loans, which broadly
share similar credit conditions and are paid through the same trust.
As such, we do not view these risks as limiting the possibility
of rating uplifts, given that these clauses do not provide a channel
or mechanism under which issuer-level credit risks—exogenous
to the enhanced loans—can be transferred to the enhanced loans.
The enhanced loans that contain limited cross default clauses in the contracts
are a) Banorte MXN 504.7 million loan, b) Banorte MXN 700
million loan, c) Scotiabank MXN 286.5 million loan and d)
Scotiabank MXN 700 million loan.
We do note, however, that the presence of these clauses interlinks
credit profiles within the trust. As such, a downgrade of
the MXN 300 million enhanced loan with Banamex could exert downward pressure
on debt ratings for those loans listed above, which cross default
clauses to other loans within the trust.
In the future, Moody's will assess the impact of new obligations
registered into this trust. Specifically, the addition of
any obligation with significantly weaker legal or credit enhancements
compared to the current obligations within the trust, could exert
downward pressure on debt ratings for the loans.
A further downgrade of the State of Quintana Roo's issuer rating
could exert downward pressure on debt ratings for these loans.
Overview of IDEFIN and Loan Structures
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
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 (original face
- 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."
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parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
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on the issuer or obligation satisfactory for the purposes of maintaining
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
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independent third-party sources. However, Moody's
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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
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Moody's de Mexico S.A. de C.V
MD - Sub-Sovereigns
Moody's Investors Service Ltd.
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Moody's de Mexico S.A. de C.V
Moody's Downgrades Debt Ratings of Seven Enhanced Loans of IDEFIN to Baa3 and Aa3.mx
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000