affirmed the rating of the Municipality of
Aa1.mx (Mexico National Scale) to a MXN 1.237 billion from Banorte
(original face value) with a maturity of 15 years.
The loan is payable through a trust (
which the municipality has pledged the flows and rights to 28% of its
"Fondo General de Participaciones" revenues.
The decision to affirm
2008,the municipality has implemented measures, both on revenues and
expenditures, to slow the rate of deterioration and produce positive
gross operating balances for 2014 and 2015. The current administration
was able to raise the rates of property taxes on its wealthiest
households this year, which will contribute to the municipality's
financial flexibility. Though we do not anticipate any further
significant increases to local tax rates in the medium-term, we expect
moderate the rate of growth of expenditures.
to be implemented this year, which will lengthen maturities and reduce
interest payments. Moreover, the current administration does not plan to
issue new debt for the rest of its mandate.
revenues among investment grade Mexican municipalities, a reflection of a
dynamic economy and growing population. This is a positive element, as
own-source revenues provide additional flexibility to Mexican
The Baa1/Aa1.mx debt ratings to the enhanced loan reflect the underlying
credit worthiness of the municipality of
following legal and credit enhancements embedded in the loan:
1. Validity of the legal authorization of the transaction, which
authorizes the trust to be used as a mechanism for debt service payment.
2. Strong trust structure based on an irrevocable notification to the
federal treasury regarding the transfer of rights and flows of
participation revenues to the trustee.
3. Estimated cash flows generate relatively low debt service coverage
ratios. Under a
are projected to provide 1.8X debt service coverage at the lowest point
over the life of the loan. Under a stress case scenario, estimated cash
flows are projected to provide 1.5X debt service coverage at the lowest
4. Strong level of reserves that represent 3.0X debt service coverage
under a stress case scenario and provide enough cushion against payment
WHAT COULD CHANGE THE ISSUER RATING UP/DOWN
A continuous improvement in the gross operating balance, and a steady
reduction in net debt, could exert upward pressures on the issuer rating
and its associated debts. Conversely, further deteriorations in the
levels of debt and gross operating balance could exert downward pressures
on the issuer's and its associated debts' ratings.
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