News Column

Moody's assigns debt ratings of Ba1/A1.mx to one enhanced loan of the State of Veracruz

August 3, 2014



Moody's de Mexico assigned debt ratings of Ba1 (Global Scale, local currency) and A1.mx (Mexico National Scale) to the following enhanced loan:

-MXN 695 million from Interacciones (original face value) with a maturity

of 15 years.

The enhanced loan is payable through a trust (Banco Invex as trustee

F/1176), to which the state has pledged the flows and rights to 1.16% of

its federal participation revenues.

RATINGS RATIONALE

The Ba1/A1.mx debt ratings assigned to the aforementioned enhanced loans

reflect the underlying credit worthiness of the state of Veracruz

(Ba3/A3.mx), supported by the following legal and credit enhancements

embedded in the loans:

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 flow generate moderate debt service coverage ratios.

Under a Moody's base case scenario, cash flows within the trust are

projected to provide 2.3X 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 1.7X debt service coverage.

4. Strong level of reserves within the master trust that represents 3.0X

debt service coverage under a stress case scenario and provide enough

cushion against payment delays.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Given the links between the loans and the credit quality of the obligor,

an upgrade of the state of Veracruz's issuer ratings could exert upward

pressure on the loan debt ratings. Conversely, a downgrade of the state

of Veracruz's issuer ratings or if debt service coverage levels fall

materially below or expectations would likely result in a downgrade of

the ratings of the loans.


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



Source: EMBIN (Emerging Markets Business Information News)


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