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Rating Action:

Moody's places Abengoa Mexico's B2/Ba1.mx ratings on review for downgrade

 The document has been translated in other languages

11 Aug 2015

Mexico, August 11, 2015 -- Moody's de México (Moody's) has today placed on review for downgrade Abengoa Mexico S.A. de C.V.'s B2/Ba1.mx issuer rating and NP/MX-3 short term national scale rating of its up to MXN3 billion short term certificados bursátiles (local notes) program. The downgrade reflects Moody's review of Abengoa S.A.'s B2 ratings for possible downgrade.

RATINGS RATIONALE

Given the close financial and operating relationship between Abengoa S.A. and Abengoa México, the ratings of the latter are directly linked to its parent company's corporate family rating. As a result, when assessing the credit risk of Abengoa Mexico, we considered the conditions that relates the default probability of Abengoa Mexico in comparison with that of its parent company. Our assessment is that there is a high correlation between Abengoa Mexico's default risk vis-a-vis the default risk of its parent company. Main drivers behind our assessment are: 1) the lack of ring-fencing provisions in Abengoa Mexico's credit agreements; 2) the lack of restriction by the Mexican corporate law on leverage and distributions to the parent; 3) existence of intercompany loans and cash pooling policies between Abengoa Mexico and Abengoa S.A.; 4) existence of guarantees from Abengoa Mexico to parent company's debt; and 5) our consideration that there is a high business dependence of Abengoa Mexico on Abengoa S.A. As long as these dynamics hold, Abengoa Mexico's rating will be constrained by its parent company's rating.

On August 07, 2015, Moody's Investors Service placed on review for possible downgrade the B2 ratings of Abengoa S.A. The rating action reflected Moody's concern over Abengoa S.A.'s high financial leverage ratios reported for the first half of 2015, well above Moody's expectations for the B2 rating, higher than expected capex spending with significant negative impact on expected free cash flows, and the weakening of the company's liquidity situation. The review process will focus on the company's free cash flow generation capacity, including the impact of financing commitments into existing projects, and, more generally, on its financial policy and liquidity management. The review will assess the company's deleveraging plans and its capacity to meet its declared targets of profitable growth and debt reduction.

For further detail on the rating action on Abengoa S.A., please refer to moodys.com.

The centralized treasury in Abengoa S.A. concentrates excess cash from all the subsidiaries without restrictions in order to have an optimal investment while allowing the group to cover temporary cash shortfalls at a subsidiary level. Given Abengoa Mexico's strong cash generation, it has run surplus in the centralized treasury and we expect this trend to continue. However, given the lack of restrictions of the group to extract cash in the centralized treasury, this may not be available for Abengoa Mexico's needs should the group's liquidity weaken.

Abengoa Mexico's B2/Ba1.mx issuer ratings reflect the company's experience in the Mexican construction market and longstanding relationship with relevant customers like CFE (Baa1, stable), the Mexican public electric utility. The rating also considers the positive business prospects in light of the recently passed energy reform in Mexico and the strong technical capabilities that the company could access through its parent company, Abengoa S.A.

Balancing these positives are the company's small size compared to its local and global peers, concentrated market base with public counterparties in Mexico, and a relatively weak business diversity assessment. The rating is further pressured by liquidity risk that could arise should its parent company's liquidity deteriorate, as there are no ring fencing provisions.

Abengoa Mexico also uses uncommitted lines with local banks and issuances of local commercial paper to cover its financing needs. As of June 2015, the company has around MXN532 million in bank debt out of which MXN360 million are due within a year. Also, the company has MXN1,928 million commercial paper issuances outstanding maturing within July 2015 and May 2016. Since the registration of the program, the company has been issuing longer tenor commercial papers, with maturities around 360 days, a practice that we consider prudent on a liquidity perspective.

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 01/01/2012 and 06/30/2015 (source: Audited Financial Statements).

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".

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 June 2015, Abengoa Mexico's revenue and Moody's-adjusted EBITDA margin were USD 216 million and 23.6% respectively.

REGULATORY DISCLOSURES

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not 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 04/02/2014.

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 places Abengoa Mexico's B2/Ba1.mx ratings on review for downgrade
No Related Data.
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