RATIONALE FOR RATING DOWNGRADE TO B1/Baa2.mx FROM Ba3/A3.mx
The downgrade of
the municipality's fiscal and financial performance in 2013. The
municipality's gross operating deficit to operating revenue ratio
deteriorated to 10.7% in 2013 from 2.5% in 2012, a level below the median
of B1-rated Mexican municipalities. Similarly, net working capital
declined to -13.5% of total expenditures, from -10.4%. Between 2009 and
2013, debt levels increased to 27.3%, from 24.7% of operating revenues,
with the level at the end of 2013 below the median of its B1-rated
Last year's deterioration in the municipality's fiscal performance was
mainly due to a sharp increase (17% year over year) in personnel costs.
Moreover, many temporary staff became permanent, which added significant
rigidity to the municipality's budget.
Although the 2014 budget foresees a 22% reduction in total expenditures,
expenditures exceeding budget by 19% in 2012 and 37% in 2013. As budget
pressures will likely persist,
exhibit highly negative operating and cash results in 2014 and 2015.
RATIONALE FOR THE NEGATIVE OUTLOOK
The negative outlook is driven by MoodyÂīs views that the municipality may
be unable to cut its operating or capital expenditures to reverse its
very weak liquidity position within the next 12-18 months.
WHAT COULD CHANGE THE RATING UP/DOWN
Given the negative outlook, a rating upgrade is unlikely over the next
12-18 months. However, the outlook could be stabilized if cash financing
requirements narrow substantially and if the liquidity position is
strengthened. Conversely, cash financing requirements leading to a
deterioration in the liquidity position and/or substantial debt increases
could exert downward pressure on
the rating is between
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