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Rating Action:

Moody's rates proposed Certificados Bursatiles 2021 of Comision Federal de Electricidad

 The document has been translated in other languages

17 May 2021

Mexico, May 17, 2021 -- Moody´s de México, ("Moody´s") assigned senior unsecured ratings of Baa1 on the global scale and Aaa.mx on the Mexican national scale to Comision Federal de Electricidad's (CFE, Baa1/Aaa.mx negative) proposed issuance of fixed rate certificados bursatiles (CFE 21U inflation linked [UDIS] and due 2031 and CFE 21-3 due 2028) and variable rate certificados bursatiles (CFE 21 due 2022 and CFE 21-2 due 2025). The proposed senior unsecured certificados bursatiles will be the first draw down, respectively, under CFE's MXN100 billion certificados bursatiles program with a five-year tenor. Together CFE 21, CFE 21U, CFE 21-2 and CFE21-3 issuances may not exceed MXN10 billion. The outlook for all ratings is negative.

Assignments:

..Issuer: Comision Federal de Electricidad

...Senior Unsecured Certificados Bursatiles due 2031 (CFE 21U), Assigned Baa1/Aaa.mx

Senior Unsecured Certificados Bursatiles due 2028 (CFE 21-3), Assigned Baa1/Aaa.mx

Senior Unsecured Certificados Bursatiles due 2022 (CFE 21), Assigned Baa1/Aaa.mx

Senior Unsecured Certificados Bursatiles due 2025 (CFE 21-2), Assigned Baa1/Aaa.mx

Outlook: unchanged at negative

The program allows for the issuance of peso, fixed or float, inflation linked, senior unsecured long-term certificados bursatiles of up to MXN 100 billion on a revolving and mutually exclusive basis. Moody's has reviewed the preliminary draft legal documentation provided to date related to the debt issuance. 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.

RATINGS RATIONALE

The assigned Baa1/Aaa.mx ratings consider that the proposed notes will be direct obligations of CFE and don't benefit from any additional credit enhancement. As a result, the assigned ratings are in line with CFE's Baa1/Aaa.mx issuer rating, which reflects the company's credit profile. Proceeds from this transaction will be used to refinance existing obligations.

CFE is Mexico's dominant electric utility and one of the largest electric utilities in Latin America, with installed generation capacity of 58.7 GW (as of March 31, 2021) when including the generation capacity of independent power producers (15.8 GW). CFE has 110,305 kilometers of transmission and sub-transmission lines (medium and high voltage) and a distribution network of more than 872,161 kilometers (low voltage). As of March 2021, and considering the last twelve months, CFE generated almost 216 TW/hr to supply energy for 45.9 million of users.

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, and its strategic importance to the country's economy overall. As such, CFE's Baa1/Aaa.mx rating reflects the application of Moody's joint default analysis (JDA) framework for GRIs, which takes into account the following four input factors: i) a BCA of ba2 as a measure of CFE's standalone creditworthiness, ii) the Baa1 rating of the Mexican government as CFE's support provider, as well as iii) our estimates of a very strong implied government support in the case of financial distress and iv) a very high default dependence between CFE and the Mexican government.

The negative outlook reflects the rating outlook of the Government of Mexico, the support provider, which provides rating uplift under our analytical framework for Government Related Issuers (GRIs). The negative outlook also reflects the uncertainty regarding the company's decision to combine debt and equity sources to finance its growing capital spending plan, which could lead to a prolonged or higher than anticipated deterioration of credit metrics.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

A rating upgrade is unlikely in the near future given CFE's negative outlook. CFE's rating could return to a stable outlook following the stabilization of the Mexican government's rating (Government of Mexico, Baa1/Aaa.mx negative).

The notes' rating would come under downward pressure if there is a downgrade of CFE's rating. CFE's rating would face downward pressure if there is a downgrade in the sovereign rating or if implied government support is likely to diminish. The rating could also be downgraded if CFE reports higher leverage than expected or an impaired ability to generate adequate cash flow, leading to a deterioration in credit metrics. Specifically, if cash flow from operations before changes in working capital (CFO pre-W/C)-to-debt ratio and CFO pre-W/C interest coverage were expected to fall below 5.0% and 2.5x, respectively, on a sustained basis, the rating could also be strained.

The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1072530. Alternatively, please see the Rating Methodologies page on www.moodys.com.mx for a copy of this methodology.

The period of time covered in the financial information used to determine Comision Federal de Electricidad's rating is between 01 January 2016 and 31 March 2021 (source: CFE's Financial Statements and Bolsa Mexicana de Valores).

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 May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1216309.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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 03/05/2021.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit 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 credit rating action, and whose ratings may change as a result of this credit 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 credit 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 general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

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.

Roxana Munoz
Asst Vice President - Analyst
Project & Infrastructure Finance
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: 1 888 779 5833
Client Service: 1 212 553 1653

Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653

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: 1 888 779 5833
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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