Mexico, January 27, 2011 -- Moody's Investors Service has placed under review for possible downgrade
the ratings on the following enhanced loans (original face value referenced):
MXN 250 million loan of the State of Guerrero contracted with BBVA-Bancomer
(Baa2)
MXN 300 million loan of the State of Nayarit contracted with Banorte
(Baa1)
MXN 300 million loan of the State of Quintana Roo (IDEFIN) contracted
with Banamex (Baa2)
MXN 449.9 million loan of the State of Tabasco contracted
with Santander (Baa2)
MXN 3 billion loan of the State of Tabasco contracted with Banorte
(Baa2)
MXN 2.4 billion bonds of the State of Nuevo Leon (Baa1)
Moody's de Mexico has placed under review for possible downgrade
the ratings on the following enhanced loans (original face value referenced):
MXN 250 million loan of the State of Guerrero contracted with BBVA-Bancomer
(Aa2.mx)
MXN 300 million loan of the State of Nayarit contracted with Banorte
(Aa1.mx)
MXN 300 million loan of the State of Quintana Roo (IDEFIN) contracted
with Banamex (Aa2.mx)
MXN 449.9 million loan of the State of Tabasco contracted
with Santander (Aa1.mx)
MXN 3 billion loan of the State of Tabasco contracted with Banorte
(Aa1.mx)
MXN 2.4 billion bonds of the State of Nuevo Leon (Aaa.mx)
The placing of these loans under review for possible downgrade reflects
the presence of unmitigated cross-default clauses in the loan contracts,
specifying that the non-payment of other debt gives the lender
the right to trigger the early amortization of the enhanced loan,
with the loan balance being due immediately. These six loans represent
only a small subset of the 71 loans Moody's rates in this sector,
the vast majority of which do not contain unmitigated cross default clauses.
Even though the loans possess otherwise strong credit enhancements and
performed well during the recent economic contraction, the non-payment
of a senior unsecured obligation outside the payment trust may trigger
an early amortization, thereby generating refinancing risks for
the state in question and jeopardizing the full and timely payment of
the senior secured loan.
"Essentially these clauses provide a channel for senior unsecured
risks to impact the performance of the senior secured obligations",
says Sean Marion, Senior Credit Officer and Team Leader for sub-national
ratings in Mexico. The agency also notes that risks related to
these clauses have been heightened by a recent shift in borrowing trends,
with states and municipalities increasing their reliance on short-term
lines of credit to smooth out in-year cash flows and short-term
credit facilities to help pay suppliers.
"In the Mexican sub-national sector, we view the credit
culture surrounding short-term obligations as somewhat weaker compared
to medium and long-term obligations, which increases risks,
to a certain extent, that these cross default clauses may be triggered",
says Roxana Munoz, an Associate Analyst in Moody's Sub-Sovereign
Group.
Moody's will follow-up immediately with the affected issuers
to clarify whether they propose to retain these cross-default clauses,
or move to amend them, and will conclude its review within two to
three months. Where a state elects to remove the clause,
or substantially mitigate its impact, the downward rating pressure
would be alleviated and the ratings would likely be confirmed.
Where the clauses remain unchanged, the ratings would likely be
lowered to a level on par with the state's issuer ratings.
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."
The last rating action with respect to the State of Guerrero was taken
on December 22, 2010, when Moody's assigned debt ratings of
Baa3/Aa2.mx to a MXN 375 million enhanced loan.
The last rating action with respect to the State of Nayarit was taken
on May 16, 2008, when Moody's lowered the issuer ratings to
Ba1/A1.mx.
The last rating action with respect to the State of Quintana Roo was taken
on November 09, 2010, when Moody's assigned debt ratings of
Baa2/Aa2.mx to two enhanced loans.
The last rating action with respect to the State of Tabasco was taken
on December 16, 2009, when Moody's lowered debt ratings to
Baa2/Aa1.mx on a MXN 3 billion enhanced loan.
The last rating action with respect to the State of Nuevo León
was taken on September 23, 2010, when Moody's assigned ratings
of Baa1/Aa1.mx to a MXN 1.6 billion enhanced loan.
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
Sean Marion
VP - Senior Credit Officer
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 Places Six Enhanced Loans of Mexican States Under Review for Possible Downgrade