News Column

Moody's de Mexico downgraded the Municipality of Manzanillo issuer rating to B1/Baa2.mx from Ba3/A3.mx with a negative outlook.

June 10, 2014



Moody's de Mexico downgraded the Municipality of Manzanillo to B1/Baa2.mx from Ba3/A3.mx with a negative outlook.

RATINGS RATIONALE

RATIONALE FOR RATING DOWNGRADE TO B1/Baa2.mx FROM Ba3/A3.mx

The downgrade of Manzanillo's rating reflects the sharp deterioration in

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

Mexican peers.

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,

Manzanillo has a poor track on budget execution, with realized

expenditures exceeding budget by 19% in 2012 and 37% in 2013. As budget

pressures will likely persist, Moody's expects the municipality to

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 Manzanillo's ratings. The period of time covered in this financial information used to determine

the rating is between 1 January 2009 and 31 December 2013.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: EMBIN (Emerging Markets Business Information News)


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters