MONTERREY, Mexico--(BUSINESS WIRE)--
Fitch Ratings has upgraded Aguascalientes' ratings as follows:
--Long-term local currency Issuer Default Rating (IDR) to 'BBB+' from
--Long-term National Rating to 'AA+(mex)' from 'AA(mex)'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
The upgrade of Aguascalientes' ratings reflects its solid operating
performance, resulting from strengthening fiscal policies and ongoing
monitoring of spending, as well as moderate leverage and sustainability
linked to its conservative debt policy. It also considers the dynamism
of the local economy and the fact that the state pension liabilities are
fully covered. The high dependence on federal revenues, a common feature
of the states in Mexico, constrains the rating.
The upgrade reflects Fitch's expectation that Aguascalientes will
maintain budgetary discipline and will generate strong operating margins
in the following years. Fitch also considers that the Federal Government
is in the process of adopting and implementing structural reforms; the
most important impact for the Mexican states is expected from the tax
reform, mainly through higher resources from the Federation, which will
The current administration has had an outstanding performance in terms
of local revenue collection and relative control of operating
expenditure, which explains higher generation of free cash flow from
operations (FCFO) and favorable liquidity levels. In the last three
years, generation of FCFO has been above 20% of current revenue.
According to the budget for 2014 and financial statements to April 2014,
Fitch forecasts that FCFO will stay around 20%.
At April 30, 2014, the direct debt of Aguascalientes was MXN2,302
million (USD179 million), of which MXN2,147 million were signed with
commercial banks maturing in 2031. The remainder of the balance consists
of two loans maturing in November 2016. Moreover, the entity does not
have short-term loans or guaranteed financing. Considering that no
additional debt is contracted by the state, direct debt and other
liabilities classified as debt by Fitch will gradually decrease.
Moreover, the state's debt burden ratios remain manageable and liquidity
levels absorbed most of the debt.
Aguascalientes has a dynamic economy with high generation of jobs and is
attractive for foreign investment. The economy is based on a strong
manufacturing sector, particularly on a fast-growing automobile
industry. In 2012, Nissan Motors announced a USD2 billion investment
program in the state. In order to further enhance the state's position
as a manufacturing hub, the local administration has committed
approximately MXN1,700 million (USD132 million) in order to improve
public infrastructure. The state financed 40% of its investment program
with two zero-coupon-bond-type bank loans, while the rest was paid out
of budget savings. Nissan's investment plan is expected to have an
important positive impact on employment, productivity, and on the fiscal
revenues of the state.
Regarding pension liabilities, Aguascalientes stands in a very favorable
position compared to Mexican states and other international governments.
According to the last actuarial valuation, the state's pension
liabilities are fully covered for the next 113 years. Additionally, the
entity makes annual actuarial studies and works to strengthen the
corporate governance of the institute responsible for the payment of
The provision of water services is the responsibility of decentralized
agencies at the municipal level, so this is not a contingency for state
finances. Aguascalientes has very good coverage of drinking water and
wastewater, ranking among the top nationally. Aguascalientes' program of
investment includes improving the availability of water over the medium
Aguascalientes benefits from its strategic geographical position and an
efficient transport network. The economic activity of the state is
characterized by its diversity, with the manufacturing sector making an
outstanding contribution. Moreover, Aguascalientes registers stronger
socioeconomic indicators than the national average.
RATING OUTLOOK - STABLE
The Stable Outlook reflects Fitch's expectation that Aguascalientes will
maintain a strong operating performance resulting in healthy debt
KEY ASSUMPTIONS AND SENSITIVITIES
A new rating action on Mexico's sovereign rating could have a similar
impact on Aguascalientes' international rating.
An upgrade could occur if Aguascalientes is able to improve its
generation of FCFO accompanied by a decrease in leverage. Conversely, a
negative rating action could result if FCFO fell far below Fitch's
expectation and/or if there were a significant rise in Aguascalientes'
Additional information is available on www.fitchratings.com
Applicable Criteria and Related Research:
'Tax-Supported Rating Criteria', Aug. 14, 2012,
'International Local and Regional Governments Rating Criteria outside
United States', April 23, 2014.
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Ileana Guajardo, +52 81 8399 9100
Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
Martha Gonzalez, +52 81 8399
Mayorga, +34 93 323 8407
Elizabeth Fogerty, +1 212-908-0526
Source: Fitch Ratings