Mexico, May 11, 2021 -- Moody's de México, S.A. de C.V.
(Moody's) has assigned an Aaa.mx national scale rating to Corporacion
Andina de Fomento's (CAF) proposed senior unsecured fixed rate local
notes with a ten year tenor, due 25 April 2031, CAF 1-21.
Moody's has also assigned a Aa3 global scale rating to the notes due 2031,
The total issuance amount of CAF's local notes will be for up to MXN 2,000
LIST OF AFFECTED RATINGS
..Issuer: Corporacion Andina de Fomento
BONDS due 25 April 2031, CAF 1-21
.... Global Scale Rating Senior Unsecured
Notes, Assigned Aa3
.... Mexico Long Term National Scale Senior
Unsecured, Assigned Aaa.mx
Moody's credit view of CAF reflects its prudent financial management,
ample market access and the strong performance of its loan portfolio despite
its exposure to lowly rated borrowers. High levels of paid-in
capital have not only led to improved capital adequacy, but also
reflect members' strong commitment to the bank's mandate.
Very strong asset quality continues to support portfolio quality,
with nonperforming loans consistently below 1% of total loans.
The three main analytic factors comprised in Moody's methodology are Capital
Adequacy, Liquidity and Funding, and Strength of Member Support.
Capital adequacy is assessed at "a2" to reflect its comparatively
modest (but weaker than that of Aa-rated peers) leverage and robust
asset performance, both of which are counterbalanced by relatively
low development asset credit quality (DACQ). The bank's capital
position is sound and benefits from regular, paid-in capital
contributions from its membership. After steadily declining for
most of the last decade, CAF's leverage ratio ticked up slightly
to 220% in 2020, from 211% in 2019, partly driven
by the use of Venezuela's equity to meet the sovereign's debt service
under the institution's "Support Program for Liquidity Management
in Exceptional Situations." Moody's expects leverage
to continue to tick up slightly over the next few years, driven
by growth of the loan portfolio, a gradual reduction of Venezuela's
equity position, which will only be partially offset by regular
increases in capital contributions from regional members. Development
Asset Credit Quality (DACQ) is low relative to peers that Moody's
rates similarly, reflecting a high level of portfolio concentration
in low-credit quality borrowers, consistent with the institution's
development mandate and regional role. Nevertheless, prudent
financial and strong risk management have resulted in strong asset performance
and a long track record of very low nonperforming assets (NPA).
CAF's "aa2" liquidity and funding score reflects the bank's
well-established presence in international bond markets and strong
liquidity position. CAF funds its borrowing needs through frequent
bond issuances in multiple international markets; its outstanding
debt as of year-end 2020 was denominated in 16 different currencies,
a reflection of the reach and diversification of its market access.
The bank also benefits from a conservative liquidity risk management policy
that mandates it to hold at least 12 months of net cash requirements (defined
as debt service and committed disbursements less repayments). In
practice, however, the institution holds 24 months of net
cash requirements. As a result, CAF's availability of liquid
resources over an 18-month period is just above that of the Aa-rated
median and in line with peers such as North American Development Bank
Finally, CAF's strength of member support is assessed as "Low."
At "b3," the ability of the bank's membership
to provide support — as proxied by the weighted average shareholder
rating — is low, reflecting the relatively low credit quality
and limited fiscal space of the bank's largest shareholders. At
the same time, because most of CAF's capital is paid-in,
it has limited callable capital, further constraining member support;
only 19.6% of CAF's capital was callable in 2020.
Shareholders' limited ability to provide extraordinary support is partially
offset by a strong and demonstrated willingness to support the institution.
This is primarily illustrated by regular capital increases that support
its strong capital buffer and expanded lending operations. This
strong willingness would at least partially offset shareholders' relatively
constrained ability to support the bank in times of stress.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Environmental considerations are not material for CAF's rating.
However, Moody's notes that as part of its mission, CAF has
committed to increase its lending for projects that look to address or
mitigate climate change risks in the Latin America region.
Social risks are not material for CAF's rating. Moody's does not
expect that social risks affecting its borrowers will affect CAF's capital
adequacy or liquidity.
Governance considerations are material. CAF's governance,
and in particular its risk management policies and practices, are
strong and in line with similarly rated MDBs.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward credit pressure on CAF's rating is unlikely, save if CAF
were to meaningfully reduce its exposure to its lowest rated borrowers,
decreased its leverage, and if its capitalization and liquidity
ratios improved significantly. The inclusion of new highly rated
non-borrowing members responsible for a significant amount of callable
capital, which reduced the correlation between members and assets,
would also support improved creditworthiness.
Conversely, downward credit pressure would arise if the Venezuela
exposure were to cause a deterioration of asset performance due to missed
payments, as it would signal the potential for material pressure
on the balance sheet of the bank over a 12-18 month time horizon.
Negative pressure would also develop if CAF were to face a strong deterioration
in asset quality due to credit events involving other borrowers,
or if it were to experience an erosion of its capital and liquidity buffers
due to a rapid expansion of its loan book not sufficiently compensated
for by additional capital contributions.
The principal methodology used in these ratings was Multilateral Development
Banks and Other Supranational Entities Methodology published in October
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1232238.
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
Corporacion Andina de Fomento's rating is between 31December 2018 and
31 December 2020 (source: audited financial statements).
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.
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
and public 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 20/4/2021.
For ratings issued on a program, series, category/class of
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de C.V accepting any liability as a result.
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and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.
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VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service, Inc.
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Sovereign Risk Group
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