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Fitch Assigns 'BBB' IDR to Municipality of Corregidora, Queretaro, Mexico; Outlook Stable
November 27, 2017 / 4:19 PM / 18 days ago

Fitch Assigns 'BBB' IDR to Municipality of Corregidora, Queretaro, Mexico; Outlook Stable

(The following statement was released by the rating agency) MEXICO CITY, November 27 (Fitch) Fitch Ratings has assigned a Long-Term Local Currency Issuer Default Rating (IDR) of 'BBB' to the municipality of Corregidora, Queretaro, Mexico. The Rating Outlook is Stable. KEY RATING DRIVERS Corregidora's strengths are its low debt ratios, robust budgetary performance reflected in high operating balances over the last three years, and a strong liquidity position. These metrics are above the 'BBB' median. The rating is constrained by Corregidora's economic profile, since its economy is still smaller than that of other peers rated at the same rating level. According to Fitch's base case scenario, Corregidora's operating balance will remain sound in 2017-2019. Fitch estimates that by 2017, operating margin (operating balance to operating revenue) would be at about 30%, as in 2016. This will be supported by growing revenues coupled with control of operating expenditures (opex). In 2016, operating revenue increased by 13.3% while opex increased by 0.2%. Own Revenues have grown at a CAGR of 26% from 2012 to 2016 thanks to revenue-raising capacity backed by a wider economic base and efficient management. However, the higher the municipality's population, the higher the costs and expenses of providing public services and meeting infrastructure needs. This could affect Corregidora's strong operating balance record. Staff expenditure has increased at a CAGR of 10.7% from 2014 to 2016 and other opex by 7.8%. Corregidora's strict cost-control measures could slow down the rate of expenditure growth. Liquidity is also strong and there are professional policies in place to manage cash. Corregidora has not accrued short-term debt and possesses high FCF. In addition, Corregidora usually finances capex with current balance. In 2016, current balance to capex was higher than 100%, thus not requiring debt financing. As of Aug. 31, 2017, Corregidora's direct debt amounted to MXN70.4 million, corresponding to a 12-year bank loan due 2026. Fitch expects the municipality's debt/current revenue to decline gradually, to below 6%. Fitch also projects that in 2017-2019, the debt/current revenue balance is likely to remain below one year. Corregidora has to pay social security and retirement payments directly to its employees. In 2016 such payments reached MXN25.7 million, or 3% of operating revenue. This represents an unfunded pension liability, which is lower in comparison to that of other entities in Mexico. In September 2016, Corregidora created a special purpose vehicle (SPV) trust to deal with this situation. As of March 2017 the trust's outstanding balance was MXN12 million. Every January, the municipality deposits resources to the trust. The municipality of Corregidora is part of the metropolitan area of Queretaro and of the industrial corridor El Bajio. The municipality benefits from its location, as the region has developed at considerable economic growth rates. Nevertheless, currently Corregidora's GDP per capita is lower than the national median (USD6,000 versus USD8,500). In 2016, population would have reached 197,500 inhabitants (8.9% of state population), based on a 2010-2015 CAGR of 4.9% (above national growth of 1.25%). RATING SENSITIVITIES Positive rating action would be triggered by an operating margin consistently above 15%, maintaining strong debt and liquidity metrics. In addition, if the economy strengthens to a level in line with peers rated at 'BBB+'. A downgrade could result if the municipality's operating performance falls below 10%, coupled with higher levels of debt leading to weakened debt payback and debt service/operating balance. However, Fitch considers this scenario highly unlikely at present. Contact: Primary Analyst Alejandro Guerrero Associate Director +52 55 5955 1600 Fitch Mexico, S.A. de C.V. Manuel Avila Camacho Blvd. 88 Mexico City Secondary Analyst Tito Baeza Associate Director +52 55 5955 1600 Committee Chairperson Ileana Guajardo Senior Director +52 81 8399 9100 Media Relations: Benjamin Rippey, New York, Tel: +1 646 582 4588, Email: benjamin.rippey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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