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Rating Action:

Moody's confirms the ratings of Series A-1 and downgrades the ratings of Series A-2 of Infonavit - CEDEVIS 07-VSM

 The document has been translated in other languages

12 Jun 2020

Mexico, June 12, 2020 -- Moody's de México S.A. de C.V. (Moody's) has confirmed the CEDEVIS 07-VSM (Series A-1) ratings at Baa1 (sf) (Global Scale Rating) and Aaa.mx (sf) (National Scale Rating) and downgraded the ratings of Cl. A-2 CEDEVIS 07-VSM (Series A-2) to B3 (sf) (Global Scale Rating) and B1.mx (sf) (National Scale Rating) of Infonavit - CEDEVIS 07-VSM, a Mexican RMBS transaction issued by Nacional Financiera S.N.C., Institución de Banca de Desarrollo, acting solely in its capacity as trustee and serviced by Instituto del Fondo Nacional de la Vivienda para los Trabajadores (INFONAVIT).

This action concludes the review for downgrade initiated on April 23, 2020 when both tranches were downgraded and placed on review for further downgrade.

The complete rating action is as follows:

Issuer: Infonavit - CEDEVIS 07-VSM

CEDEVIS 07-VSM, Confirmed at Baa1 (sf); previously on April 23, 2020 Downgraded to Baa1 (sf) (Global Scale Rating) and Placed Under Review for Possible Downgrade

CEDEVIS 07-VSM, Confirmed at Aaa.mx (sf); previously on April 23, 2020 Aaa.mx (sf) (National Scale Rating) Placed Under Review for Possible Downgrade

Cl. A-2 CEDEVIS 07-VSM, Downgraded to B3 (sf); previously on April 23, 2020 Downgraded to Baa1 (sf) (Global Scale Rating) and Placed Under Review for Possible Downgrade

Cl. A-2 CEDEVIS 07-VSM, Downgraded to B1.mx (sf); previously on April 23, 2020 Aaa.mx (sf) (National Scale Rating) Placed Under Review for Possible Downgrade

RATINGS RATIONALE

The rating action on these bonds is prompted by the erosion of overcollateralization (OC) from 34.5% to 19.1% from September 2019 to March 2020 . The primary cause of this erosion in OC was an increase in the reference index used to formulaically adjust the nominal value of the certificates (VNA) each year. In 2020, minimum salaries (VSM) jumped by 20% year-over-year increasing the reference index, which is tied to the value of VSM. In 2019, the VNA was adjusted by a different index, the Unidad de Medida y Actualización (UMA). Looking ahead, we expect this erosion in credit enhancement will continue.

Furthermore, the proportion of delinquent loans is on the rise. Loans more than 180 days past due increased to 14.3% in May 2020 from 10.5% in September 2019, which could ultimately contribute to higher losses.

Our analysis has considered the increased uncertainty relating to the effect of the COVID-19 outbreak on the Mexican economy, as well as the effects that the announced government measures put in place to contain the virus, will have on the performance of consumer assets. Specifically, for mortgage loans, performance will weaken due to an unprecedented spike in the unemployment rate that may limit borrower income and ability to service debt. Furthermore, borrower assistance programs to affected borrowers may slow down scheduled cash flows to bondholders.

The contraction in economic activity in the second quarter will be severe and the overall recovery in the second half of the year will be gradual. However, there are significant downside risks to our forecasts in the event that the pandemic is not contained and lockdowns have to be reinstated. As a result, the degree of uncertainty around our forecasts is unusually high.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implication for public health and safety.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:

Factors or circumstances that could lead to an upgrade of the ratings include: (1) performance of the underlying collateral that is better than Moody's expected; (2) deleveraging of the capital structure; (3) improvements in the credit quality of the transaction counterparties; and (4) a decrease in sovereign risk.

Factors or circumstances that could lead to a downgrade of the ratings include: (1) unsatisfactory data quality; (2) performance of the underlying collateral that is worse than Moody's expected; (3) an increase in sovereign risk; (4) deterioration in the notes' available credit enhancement; (5) deterioration in the credit quality of the transaction counterparties and (6) a determination that the Series A-1 certificates updated by VSM will negatively impact the level of credit enhancement available.

RATING METHODOLOGY

The principal methodology used in these ratings was "Moody's Approach to Rating RMBS Using the MILAN Framework" published in July 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1179948. Alternatively, please see the Rating Methodologies page on www.moodys.com.mx for a copy of this methodology.

The Spanish language version of the "Moody's Approach to Rating RMBS Using the MILAN Framework" methodology of July 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1179953 is the current version registered at the Comisión Nacional Bancaria y de Valores ("CNBV") and, therefore, is the document to be used in ratings assigned by Moody's de México, S.A. de C.V. Institución Calificadora de Valores ("MDM"). The corresponding English language version of such methodology, however, is already outdated for other jurisdictions and therefore cannot be employed by MDM's affiliates for the assignment of ratings of similar securities or entities in such other jurisdictions.

The period of time covered in the financial information used to determine Infonavit - CEDEVIS 07-VSM's ratings is between August 31, 2007 and May 30, 2020. (source: periodic collections and remittances reports sent by the servicers, trustees and common representative agents)

Moody's considered the servicer's practices and considers them adequate.

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.

In issuing and monitoring this rating, Moody's de México S.A. de C.V. considered the existence and extent of arrangements and mechanism, if any, to align the incentives of the originator, servicer, administrator and guarantor of the securities with those of its potential acquirers.

1) The expected level of enforceability of the transaction's structural mechanisms in light of the legal, regulatory, tax and sovereign risk environment is anticipated to prevail during the life of the transaction. Changes in legal, tax, regulatory, or sovereign risk environment can result in an increase or decrease in the level of enforceability of transaction structural mechanisms the level of default probabilities, or the level or timing of recoveries leading to rating volatility.

2) Performance behavior (generally as expressed by factors such as the default rate, prepayment rate, any concentration of the obligors and/or underlying assets, valuation of underlying assets, yield or otherwise derived from historical experience) and related dependency of the underlying exposures from key transaction counterparties or related guarantor are expected to remain reasonably stable over extended period of times and not expected to lead to rating volatility. However indicators of significant shifts in the above factors on a stand-alone basis or combined, which may not have been addressed by structural mitigants, could result in higher degree of rating volatility.

3) The expected realization value and time line of realization of the non-performing or otherwise disposed underlying assets is dependent on the credit cycle, whereas the realization value of the related guarantees is expected to remain stable . If timeline and / or realization value change dramatically from our assumptions, it may have some impact on the ratings.

4) The transaction's relevant parties' governance, ability and willingness to perform their obligations as contemplated in the transaction's documents are expected to remain relatively stable, and/or mitigated by the transaction's structure. Should the change in governance, ability and willingness to perform their obligation goes through changes not contemplated in the mitigating feature of the transaction structure, it may have some rating impact.

5) The assessment of the level of reliability, quality and integrity of the information provided by the relevant parties is expected to be satisfactory through the course of the transaction. Significant deviation from the appropriate level in reliability, quality and integrity of the information could cause some negative rating migration or, in a worst case scenario, could lead to rating withdrawal.

In issuing this credit rating, Moody's de México S.A. de C.V. did not rely on ratings issued by any other credit rating agency over this issuer/security or any underlying securities.

In rating this transaction, Moody's used a cash flow model to model cash flow stress scenarios to determine the extent to which investors would receive timely payments of interest and principal in the stress scenarios, given the transaction structure and collateral composition.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

Information sources used to prepare the rating are the following: parties 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 23/4/20.

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.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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 Granovsky
Analyst
Structured Finance Group
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

Daniela Jayesuria
Senior Vice President/Manager
Structured Finance 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.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

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