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Rating Action:

Moody's rates CFE's proposed certificados bursátiles; outlook stable

 The document has been translated in other languages

25 Jan 2011

Approximately MXN4 billion in debt instruments affected

Mexico, January 25, 2011 -- Moody's de México (Moody's) has assigned Baa1 global and Aaa.mx Mexican national scale ratings to Comisión Federal de Electricidad's (CFE) proposed senior unsecured certificados bursátiles fiduciarios (add-on to CFECB 10-2).

RATINGS RATIONALE

Moody's de México (Moody's) has assigned Baa1 global and Aaa.mx Mexican national scale ratings to Comisión Federal de Electricidad's (CFE) proposed senior unsecured certificados bursátiles fiduciarios (add-on to CFECB 10-2).

The proposed notes would be the first add-on to the fifth draw down under CFE's five year MXN24 billion certificados bursátiles (local MTN) program established at Fideicomiso No. F/411, a trust operated by Bank of America Mexico's fiduciary division on behalf of CFE. The proposed issuance will consists of floating rate notes with an approximate ten year remaining tenor (CFECB 10-2) not to exceed MXN3.8 billion. CFE will use proceeds from the issuance for refinancing certain public works investments (obra publica financiada).

Moody's has reviewed preliminary draft legal documentation related to the debt issuance and the assigned ratings assume that there will be no material variation from the drafts reviewed and that all agreements will be legally valid, binding and enforceable. In particular, Moody's ratings of all the notes issued under CFE's certificados bursatiles programs assume the due execution and delivery of each of the Assignment Agreements (Contrato de Cesion) entered by and among CFE, the assignor (here Banco Nacional de Mexico, S.A.; Banamex) and Bank of America Mexico, S.A. acting as trustee of the Fideocomiso No. F/411, the assignee, and that the assignments of the collection rights under the Loan Agreements that takes place when Exhibit B of the Assignment Agreement is executed is deemed to have a certain date (fecha cierta) as permitted by the Mexican law.

CFE, wholly-owned by the Mexican federal government, is Mexico's dominant, vertically-integrated electric utility and the largest electric utility in Latin America, with installed generation capacity of 50 GW when including independent power producers, or IPPs. CFE is a decentralized government agency which, with certain limited exceptions, pursuant to the Mexican constitution has exclusive responsibility for the strategic development, construction, operation and maintenance of the country's electricity system. The company accounts for the vast majority of Mexico's total installed capacity and electricity production and, since the liquidation of Luz y Fuerza del Centro (LFC) in October 2009 by presidential decree, is also responsible for operating the assets in Mexico City and adjacent areas that were previously owned by LFC. These assets mainly relate to transmission and distribution activities and currently belong to the Servicio de Administración y Enajenación de Bienes, or SAE, a decentralized government agency.

The Baa1 and Aaa.mx ratings reflect the application of Moody's joint default analysis (JDA) framework for government related issuers (GRIs), which takes into account the following four input factors: i) a baseline credit assessment (BCA) of 10 as a measure for the rated entity's standalone creditworthiness (which is consistent with a Baa3 rating), ii) the Baa1 rating of the Mexican government as the support provider, as well as iii) our estimates of a high degree of implied government support in the case of financial distress and iv) a pronounced default dependence between CFE and the Mexican government. Moody's assigns BCAs on a scale from 1 to 21, with 1 reflecting the lowest credit risk.

The Mexican government does not guarantee CFE's debt obligations; however, we believe that there is significant likelihood of government support in the case of distress for several reasons, including the company's status as a major government-owned entity, its strategic importance to the country's economy overall, and the low likelihood of privatization in the foreseeable future. Moody's estimate of pronounced default dependence reflects the expectation that there is an elevated likelihood that the government and CFE would default simultaneously due to common risk factors.

CFE's BCA of 10 reflects a low-Baa standalone credit profile, which balances the company's dominant market position and solid financial profile with a number of credit challenges, which include (1) the sector's significant longer term investment needs for satisfying future electricity demand; (2) subsidies for residential and agricultural rates; and (3) the risk of political interference with established automatic cost recovery mechanisms, which could affect the company's cash flow and financial profile going forward. We believe that on average CFE benefits from solid cash generation through the cycle despite the drag from subsidized residential and agricultural rates and high cash payouts to service obligations related to its unfunded defined benefit pension plan for its retirees.

CFE's stable rating outlook reflects i) the stable outlook on the rating of the Mexican government, ii) Moody's expectation that implied support or dependence levels will not change, iii) that the company's operating performance will remain solid, with at least breakeven free cash flow, and iv) that over the medium term the company can manage its existing investment needs while maintaining credit metrics at appropriate levels for its current BCA.

The last rating action on Comisión Federal de Electricidad was January 5, 2011, when Moody's assigned Baa1 global and Aaa.mx Mexican national scale ratings to CFE's proposed additional senior unsecured floating rate certificados bursatiles (local notes, first add-on to CFE 10) due 2014 and fixed rate certificados bursatiles (first add-on to CFE 10-2) due 2020, which are CFE's direct obligations under its MXN 25 billion dual certificados bursatiles (local medium-term note, or MTN) a five year tenor program that was registered with the Mexican regulatory authorities in November 30, 2010. At the same time, Moody's affirmed the company's existing senior unsecured ratings pof Baa1 global and Aaa.mx Mexican national scale ratings.

The principal methodologies used in rating Comisión Federal de Electricidad are Moody's Regulated Electric and Gas Utilities rating methodology published in August 2009 and Government Related Issuers: Methodology Update published in July 2010.

Comisión Federal de Electricidad (CFE), headquartered in Mexico City, Mexico, is the Mexican government's agency responsible for the strategic development, construction, operation, and maintenance of Mexico's electricity system. For the 12 months ended September 30, 2010, CFE reported revenues of MXN249 billion (about USD19.4 billion).

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."

REGULATORY DISCLOSURES

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 Service information, and confidential and proprietary Moody's Analytics information.

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.

New York
Natividad Martel
Analyst
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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 rates CFE's proposed certificados bursátiles; outlook stable
No Related Data.
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