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Rating Action:

Moody's assigns Aaa.mx/Aa3 rating to Corporacion Andina de Fomento's (CAF) proposed local notes for up to MXN 2,000 million with 10 year tenor

 The document has been translated in other languages

11 May 2021

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, CAF 1-21.

The total issuance amount of CAF's local notes will be for up to MXN 2,000 million.

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

RATINGS RATIONALE

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 (Aa1 negative).

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.

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 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 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

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.

Jaime Reusche
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Alejandro Olivo
MD-Sovereign/Sub Sovereign
Sovereign Risk Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
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: 1 888 779 5833
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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