Mexico, April 01, 2011 -- Moody's de Mexico downgraded the issuer ratings of the State of Quintana
Roo to A2.mx from A1.mx (Mexico National Scale) and to Ba2
from Ba1 (Global Scale, local currency). At the same time,
Moody's revised the outlook on the issuer ratings to negative from stable.
The downgrade of the issuer ratings reflects the recent deterioration
of Quintana Roo's financial performance on an absolute basis and
relative to peers. This deterioration includes: 1) the recording
of sizable consolidated fiscal deficits in 2009 and 2010, 2) recent
increases in debt metrics, and 3) a contraction in net working capital
(current assets less current liabilities) due to the issuance of short
term debt and increases in accounts payable.
In 2009 and 2010, Quintana Roo posted cash financing requirements
equivalent to -12.3% of total revenues, on
average, as a result of an expansion of the state's capital program
and an increase in transfer payments to state entities. This marked
a significant deterioration from the state's financial performance
from 2005 - 2008, when it posted cash financing surpluses
averaging 2.6% of total revenues.
As a result of these cash financing requirements over the past two years,
Quintana Roo's net direct and indirect debt reached 37.7%
of total revenues in 2010, well above the median of Ba rated Mexican
states, up from just 14.2% in 2008. While the
impact of the additional debt on the state's debt service costs
will be delayed given the grace periods for principal payment of 18-24
months, in two years the state's debt service costs will be
equivalent to an estimated 4% of total revenues, up from
1.7% in 2010.
Furthermore, given the increase in accounts payable to suppliers
and substantial short term borrowings, net working capital (current
assets less current liabilities) decreased to -13.8%
of total expenditures in 2010, from a positive average of 0.4%
registered from 2005 to 2009.
The negative outlook reflects Moody's expectation that the recent
deterioration of key credit factors is likely to continue over the next
two years, notwithstanding the plans of new administration,
which will take power in April, to redress fiscal challenges by
implementing measures on both the expenditure and revenue sides of the
Given the magnitude of recent cash financing requirements, in conjunction
with the deterioration in net working capital and debt metrics,
Quintana Roo faces significant challenges to address state finances over
the near to medium term. The ratings are likely to face further
downward pressure unless the new administration, which will take
power in April 2011, successfully redresses these challenges with
its planned expenditure austerity program and initiatives to increase
In addition to these challenges, Moody's will also monitor closely
any changes to the state's plans to pay off all short term debt with one-time
asset sales in 2011. If the state fails to address its fiscal situation
as well as refinance its short-term debt with longer-term
debt, the rating could potentially be downgraded by more than one
notch to reflect increased refinancing risk.
Although we do not anticipate upward pressure over the near term,
a structural realignment of revenue and expenditure growth rates,
leading to a) a sustainable correction of the negative consolidated fiscal
results, b) stabilization of net direct and indirect debt at current
levels, and c) a return of net working capital to positive levels,
could result in a stabilization of the outlook.
The last rating action with respect to IDEFIN and the State of Quintana
Roo was taken on February 10, 2011, when Baa2/Aa2.mx
ratings were assigned to the following two state loans (original face
- Scotiabank: MXN 700 million
- Banorte: MXN 700 million
The principal methodologies used in this rating were Regional and Local
Governments Outside the US, published in May 2008, and The
Application of Joint Default Analysis to Regional and Local Governments
published in December 2008.
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 maintaining
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.
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 downgrades the State of Quintana Roo's issuer ratings to Ba2 and A2.mx, and revises outlook to negative
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000