Mexico, April 08, 2011 -- Moody's de Mexico assigned debt ratings of Ba1 (Global Scale, local
currency) and A1.mx (Mexico National Scale) to the Municipality
of Mexicali MXN 814.5 million enhanced loan from Banobras
The MXN 814.5 million loan from Banobras is payable through a trust
(HSBC, Trust Number 303550), to which the Municipality has
pledged the rights and flows of 28.5% of participation transfers
from the Government of Mexico (Baa1, stable). In case that
participation revenues are not sufficient for paying debt service on any
of the loans, the municipality has the obligation to send additional
revenues to the trust in order to make up the shortfalls.
The loan is denominated in Mexican pesos, with maturity of 20 years.
The loan will pay an interest rate composed of the 28-day Mexican
Interbank Interest Rate (TIIE in Spanish) plus a spread. This loan
is refinancing three Banobras loans with a total outstanding value of
MXN 735.6 and the incremental debt issuance stands at around MXN
The ratings assigned are based on documentation received by Moody's as
of the rating assignment date. In the event that the loan structure
change from the documentation submitted to us, Moody's will assess
the corresponding impact these factors may have on the ratings and act
The Ba1/A1.mx ratings assigned to the loan reflect the underlying
creditworthiness of the Municipality of Mexicali (Ba3/A3.mx,
stable), supported by the following legal and credit enhancements
embedded in the loan.
1. Validity of the legal authorization of the transaction,
which authorizes the trust to be used as a mechanism for debt service
2. Strong trust structure based on an irrevocable notification
to the State of Baja California regarding the transfer of rights and flows
of participation revenues to the trustee.
3. An interest rate "CAP" of 10% for the first nine years,
which provides protection against unforeseen medium-term increases
in the TIIE.
4. Estimated cash flows generate solid debt service coverage ratios.
Under a Moody's base case scenario, cash flows for the loan are
projected to provide 2.3x debt service coverage at the lowest point
over the life of the loan. Under a Moody's stress case scenario,
estimated cash flows for the loan are projected to provide 2.2x
debt service coverage, at the lowest point over the life of the
5. Solid level of reserve funds that represent 2.2x coverage
of debt service at the minimum point over the life of the loan and provide
a solid cushion against payment delays.
The rating rationale also recognizes the following credit challenge:
1. Commingling risk at the level of the State of Baja California
(Baa1/Aa1.mx, stable) as the state sends cash flows to the
trust, however, this is offset by:
a) the state's strong governance and management practices,
including a strong credit culture, and
b) legal barriers that prohibit the state for intervening with municipal
The last rating action with respect to the Municipality of Mexicali was
taken on October 8th 2007, when Moody's upgraded the National Scale
Issuer Ratings to A3.mx from Baa1.mx.
The principal methodologies used in this rating were Regional and Local
Governments Outside the US published in May 2008, The Application
of Joint Default Analysis to Regional and Local Governments, published
in December 2008, and Enhanced Municipal and State Loans in Mexico
published in January 2011.
Moody's National Scale 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 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 ".mx"
for Mexico. For further information on Moody's approach to national
scale ratings, please refer to Moody's Rating Implementation Guidance
published in August 2010 entitled "Mapping Moody's National Scale
Ratings to Global Scale Ratings."
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 assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Maria del Carmen Martinez-Richa
Asst Vice President - Analyst
Moody's de Mexico S.A. de C.V
MD - Sub-Sovereigns
Moody's Investors Service Ltd.
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Moody's de Mexico S.A. de C.V
Moody's de México Assigns Debt Ratings to a MXN 814.5 Million Enhanced Loan of the Municipality of Mexicali
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000