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Rating Action:

Moody's downgrades Abengoa Mexico to Caa2 / Caa2.mx; negative outlook

 The document has been translated in other languages

27 Nov 2015

Mexico, November 27, 2015 -- Moody's de México (Moody's) has today downgraded Abengoa Mexico, S.A. de C.V.'s issuer rating to Caa2 / Caa2.mx from B3/B1.mx. Concurrently, Moody's affirmed the NP short term rating and confirmed the MX-4 national scale rating of its up to MXN3 billion short term certificados bursátiles (local notes) program. The outlook is negative.

..Issuer: Abengoa Mexico, S.A. de C.V.

Downgrades:

.... Issuer Rating, Downgraded to Caa2 from B3

.... Issuer Rating, Downgraded to Caa2.mx from B1.mx

Affirmations:

....Senior Unsecured Commercial Paper, at NP

Confirmations:

....Senior Unsecured Commercial Paper at, MX-4

RATINGS RATIONALE

The downgrade on Abengoa Mexico´s ratings mirrors the downgrade to Caa2 from B3 of the ratings of Abengoa S.A., Abengoa Mexico's parent company on November 26, 2015, and follows the announcement on November 26, 2015 that Abengoa México missed coupon payments on its outstanding commercial papers. Cure period for coupon payments is five days after which all outstanding amount under its local commercial paper program (around MXN 2 billion) could be accelerated. The downgrade on Abengoa S.A.'s ratings reflects the announcement on November 25, 2015 regarding the withdrawal of Gonvarri Corporacion Financiera (Gonvarri)'s intention to inject at least EUR250 million new equity into Abengoa S.A. and become the company's largest single investor, given that it sees the condition of a substantial financial package unfulfilled; and that Abengoa S.A. has made a formal filing under article 5 bis of the Spanish Insolvency Law (Ley Concursal), which though not a default in itself, reflects the precarious liquidity absent the equity raising and may be a likely precursor to a formal restructuring proceeding. For further detail on the rating action on Abengoa S.A., please refer to moodys.com.

The very tight liquidity position of Abengoa S.A. threatens Abengoa Mexico's access to its surplus in the group's centralized treasury. Accordingly, recovery for commercial paper creditors will depend on the ability of the Mexican subsidiary to recover cash at the centralized treasury and on whether the parent's restricted cash considers payments for the Mexican subsidiary commitments.

As of the end of September 2015, Abengoa Mexico's net position in the centralized treasury was MXN 7.4 billion. For the same period, cash on hand was MXN 103 million, which is not enough to cover short term maturities amounting MXN 2.1 billion. Upcoming payments include commercial paper maturities of MXN 264 million in December 2015.

Moreover, Abengoa Mexico is one of the subsidiaries guaranteeing a large portion of the group's debt. As of the end of 2014, Abengoa S.A. estimated that the group of guarantors accounted for around 75% of consolidated EBITDA. We estimate guaranteed debt as of the end of 2014 at around EUR 3.8 billion. We do not adjust Abengoa Mexico's leverage to account for guaranteed debt as the subsidiary is only a small contributor to the guarantor group. However, these instruments rank at the same level as Abengoa Mexico´s commercial papers, which recovery prospects would be therefore very low in a liquidation scenario.

The rating outlook is negative given the high likelihood of a default following the 5-day grace period for the company´s commercial paper coupon payment. Moreover, even if Abengoa Mexico is able to make the coupon payment before the end of the cure period, the negative outlook still reflects the ongoing uncertainty as the parent company enters this new phase of negotiations with its creditors; payment risk on upcoming interest and 2016 debt maturity payments; and the possibility that the 5bis filing may be followed by a more formal filing.

Abengoa Mexico's ratings could be upgraded if the company improved its liquidity situation to sufficient levels. The improvements could come from full access of Abengoa Mexico's surplus in the group's centralized treasury. At the parent level, in order to be considered material, improvements in liquidity, apart from financing its ongoing operations, should also allow the realization of the company's initial plan to execute the EUR650 million equity capital increase, and thus de-lever the company and support its liquidity situation. A liquidity improvement to sufficient levels at Abengoa S.A. would need to include the refinancing of the short-term debt maturities and increasing short-term credit lines, as well as substantial progress in the existing EUR1.2 billion asset disposal programme.

The ratings of Abengoa Mexico could be further downgraded if its access to the group's funding sources continue restricted such that they cannot cover coupon payments in the cure period, resulting in the acceleration of all the debt under its commercial paper program. A downgrade could also be triggered if the existing 5bis process at Abengoa S.A. would be unsuccessful, and result in a subsequent formal insolvency procedure and/or if the company formally defaulted on its debt obligations, such as by a distressed exchange on its outstanding bonds, or by the inability of Abengoa S.A. to pay bond coupons and/or redeem its March 2016 bond maturities.

Headquartered in Mexico City, Abengoa Mexico is a fully owned subsidiary of Abengoa S.A. The company was founded in 1981 to conduct Abengoa S.A.'s business in Mexico. The company is well integrated into its parent's operation, with its main activity being the engineering & construction (E&C) of projects related with the energy industry. For the last twelve months ended in September 2015, Abengoa Mexico's revenue and Moody's-adjusted EBITDA margin were USD 254 million and 24.7% respectively.

The principal methodology used in these ratings was Construction Industry published in November 2014. Please see the Credit Policy page on www.moodys.com.mx for a copy of this methodology.

The period of time covered in the financial information used to determine Abengoa Mexico, S.A. de C.V.'s rating is between 1/1/2012 and 9/30/2015 (source: Audited Financial Statements and quarterly reports filed with BMV).

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's information.

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 June 2014 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

REGULATORY DISCLOSURES

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 24/11/2015.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the 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 rating action, and whose ratings may change as a result of this 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 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 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.

Sandra Beltran
Asst Vice President - Analyst
Corporate 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: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

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: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Moody's downgrades Abengoa Mexico to Caa2 / Caa2.mx; negative outlook
No Related Data.
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