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Global Credit Research - 14 Sep 2010
Mexico, September 14, 2010 -- Moody's de Mexico changed the outlook on the State of Guerrero's A2.mx
issuer rating (Mexico National Scale) to positive from stable.
Moody's Investors Service changed the outlook on Guerrero's Ba2
issuer rating (Global Scale, local currency) to positive from stable.
The outlook change reflects the strengthening of governance and management
practices, which have supported 1) the recording of roughly balanced
fiscal results in recent years, despite the impact of the 2009 economic
slowdown, 2) a stable, and low, debt burden and 3) the
maintenance of robust liquidity levels.
Following the recording of modest consolidated cash financing requirements
in 2006 and 2007, equivalent to -3.7% and -0.7%
of total revenues respectively, the state recorded cash financing
results equivalent to 3.1% in 2008 and -0.2%
2009. Overall, the rebalancing of fiscal results reflects
austerity measures to control expenditure growth and initiatives to strengthen
own-source revenue collection. The recording of a roughly
balanced outcome in 2009 also reflects the state's success in actively
monitoring revenues in-year and adjusting expenditures accordingly.
As a result of the recording of balanced fiscal outcomes, Guerrero
has maintained relatively low debt levels. At the end of 2009,
net direct and indirect debt amounted to MXN 2.6 billion or 7.5%
of total revenues, a low level compared to peers.
The strengthening of management practices has also ensured the maintenance
of robust liquidity levels. Net working capital, measuring
current assets minus current liabilities, amounted to 8.8%
of total expenditures in 2009, a high level compared to peers.
Liquidity of this magnitude constitutes a credit positive as it provides
the state with an internal cushion against unforeseen shocks.
The ratings also take into account the impact of Guerrero's narrow,
and relatively poor, economic base, which constrains own-source
revenues, and credit risks related to high unfunded pension liabilities.
According to a 2009 actuarial study, unfunded pension liabilities
stood at MXN 35.2 billion, using a 3.0% discount
rate, which is equivalent to approximately 100% of 2009 revenues.
In order to address these obligations, the state is reviewing a
proposed reform bill that aims to curb the growth of pension liabilities
and place the system on a more stable financial footing.
The positive outlook reflects the impact of above mentioned fiscal,
debt and liquidity trends and expectations regarding pension reform.
An eventual decision to upgrade the ratings will depend on the state's
success in 1) maintaining positive trends in fiscal, debt and liquidity
metrics over the next 12 to 18 months and 2) executing a reform of the
state pension system, leading to a reduction of unfunded pension
liabilities and more proactive long-term management of these obligations.
A failure to maintain recent positive financial trends over the next 12
to 18 months, and to execute pension reform, would likely
lead to a revision of the outlook back to stable.
The last rating action with respect to the State of Guerrero was taken
on November 4, 2009 when issuer ratings of Ba2/A2.mx were
The principal methodologies used in rating the State of Guerrero were
"Regional and Local Governments Outside the US" and "The Application of
Joint Default Analysis to Regional and Local Governments", published
respectively in May 2008 and December 2008 and available on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies subdirectory on Moody's website.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Vice President - Senior Analyst
Moody's de Mexico S.A. de C.V
MD - Sub-Sovereigns
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's de Mexico S.A. de C.V
Moody's changes the outlook on Guerrero's Ba2 and A2.mx issuer ratings to positive
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
No Related Data.
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