Mexico, December 02, 2020 -- Moody's de Mexico ("Moody's") has today affirmed the
B1/Not Prime long- and short-term local currency issuer
ratings of Value, S.A. de C.V.,
Casa de Bolsa (Value), as well as its Baa2.mx and MX-3
long and short-term Mexican national scale issuer ratings,
respectively. The outlook on the ratings is stable.
Moody's has also withdrawn the outlook on Value's existing global
scale long-term issuer rating for its own business reasons.
Please refer to the Moody's de México Policy for Withdrawal of
Credit Ratings, available on its website, www.moodys.com.mx.
The following ratings of Value, S.A. de C.V.,
Casa de Bolsa were affirmed:
Long-term global local currency issuer rating of B1
Short-term global local currency issuer rating of Not Prime
Long-term Mexican national scale issuer rating of Baa2.mx
Short-term Mexican national scale issuer rating of MX-3
..Outlook, stable
RATINGS RATIONALE
Moody's affirmation of the rating of Value at B1 captures the broker dealer's
high-risk appetite, given the nature of its investment portfolio
concentrated in Mexican project finance securitizations, which tend
to be less liquid than its holdings of highly-liquid Mexican government
securities. However, the firm's relatively illiquid
investment portfolio has had adequate credit performance to date.
At the same time, Value's long track record as a niche investment
franchise, its low leverage and strong capitalization ratios protect
the firm against extreme market swings, and offsets its volatile
profitability. Value's ratings also incorporate Moody's
views that decision-making processes tend to be concentrated with
a handful of key executives, exposing the firm to governance risks.
Value's performance to date reflects the unrealized losses triggered
by the coronavirus-related volatility in its investment portfolio,
which led to mark-to market losses in the first quarter,
followed by recovering valuations in the second and third quarters of
2020. Most of Value's investments are composed of infrastructure
bonds related to toll road projects and highways concessions in Mexico;
whose performance suffered at the outset of the pandemic as mobility declined.
As of September 2020, Value's return on average assets (ROAA)
was a negative 3.1%, resulting in a spike in its pre-tax
earnings volatility ratio to a very high 305% in the same period.
Historically, Value's pre-tax earnings volatility,
at around 100% in the past four years, has been high relative
to that of other global market makers. The concentration in Level
3 assets is also higher than global peers. At the same time,
Value has managed to control its operating expenses since 2017,
which have declined relative to bottom line results, but the recent
balance sheet contraction and operating losses resulted in still modest
operating efficiency.
Value's reduced risk exposure and ample market liquidity supported
its liquidity inflows to outflows ratio, which increased to a strong
135% in September 2020, from an average of around 100%
over the past three years. However, as market conditions
improve over time, Value's risk appetite and leverage will
likely increase, reversing the boost to funding and liquidity seen
in 2020. Value's market funding has declined as a share of
total liabilities for the past 3 years, and its own capital now
finances more than 50% of its operations.
Moody's also notes that its ratings for Value incorporate a qualitative
adjustment to reflect the assessment that the firm's decision-making
process is concentrated in a handful of key executives, raising
concerns about potential key-man risks. Moreover,
the brokerage house's ownership structure could also expose the firm to
potential corporate governance risks.
Value's Baa2.mx Mexican national scale issuer rating is the
highest of the two alternatives corresponding to the B1 global issuer
rating and reflects the firm's low leverage and strong capitalization,
and its well-established niche business.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Ratings could face upward pressure if the firm manages to stabilize its
earnings at positive levels, while maintaining solid liquidity and
funding buffers as risk appetite increases. Increased business
diversification without outsized risks would be credit positive.
Value's ratings could be downgraded if profitability declines materially
hurting its capital, and if leverage increases significantly,
amid a reduction in liquidity and funding buffers.
The principal methodology used in these ratings was Securities Industry
Market Makers Methodology published in November 2019 and available at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187332.
Alternatively, please see the Rating Methodologies page on www.moodys.com.mx
for a copy of this methodology.
The period of time covered in the financial information used to determine
Value, S.A. de C.V., Casa de Bolsa's
rating is between 1 January 2016 and 30 September 2020 (source:
Audited Financial statements 2016-2019. Quarterly financials
2016-2020).
Moody's National Scale Credit 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 credit 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 ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1216309.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
Information sources used to prepare the rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
information.
The ratings have been disclosed to the rated entity prior to public dissemination.
A general listing of the sources of information used in the rating process,
and the structure and voting process for the rating committees responsible
for the assignment and monitoring of ratings can be found in the Disclosure
tab in www.moodys.com.mx.
The date of the last Credit Rating Action was 30/3/2017.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For further information please see the ratings tab
on the issuer/entity page for the respective issuer on www.moodys.com.mx.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
This credit rating is subject to upgrade or downgrade based on future
changes in the financial condition of the Issuer/Security, and said
modifications will be made without Moody's de México S.A.
de C.V accepting any liability as a result.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
Moody's considers the quality of information available on the rated entity,
obligation or credit satisfactory for the purposes of issuing a rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a 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 Moody's Rating Symbols and Definitions on www.moodys.com.mx
for further information on the meaning of each rating category and the
definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com.mx
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is the most
reliable and accurate based on the information that is available to it.
Please see our website www.moodys.com.mx for further
information.
Please see www.moodys.com.mx for any updates on changes
to the lead rating analyst and to the Moody's legal entity that has issued
the rating.
The ratings issued by Moody's de Mexico are opinions regarding the credit
quality of securities and/or their issuers and not a recommendation to
invest in any such security and/or issuer.
Please see the ratings tab on the issuer/entity page on www.moodys.com.mx
for additional regulatory disclosures for each credit rating.
Rodrigo Marimon Bernales
Analyst
Financial Institutions Group
JOURNALISTS: 1 800 666 3506
Client Service: 1 212 553 1653
M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
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