Oaxaca to Get MXP500m Loan

Mexico’s state of Oaxaca has secured a MXP500m loan from Banorte. The facility is payable through a trust, to which the state pledges future flows from a portion of participation revenues received from the federal government, which in this case is 7%. The loan has a maturity of 10 years, with a 1-year grace period and will pay 155bp over TIIE. It has a Baa2 rating on a national scale from Moody’s, reflecting creditworthiness of the state of Oaxaca, as well as a trust structure based on “an irrevocable notification to the federal treasury regarding the transfer of rights and flows of participation revenues to the trustee,” says Moody’s. It adds that estimated cashflows generate a relatively high debt service coverage ratio compared to peers. Cashflows are expected to provide a 6.5x coverage during the lowest point during the life of a loan in a base case scenario, and 5.4x in a stress case scenario, says Moody’s. It adds that there is a moderate level of reserve funds, which give a 2x debt service coverage of the highest months over the life of the loan and provide a solid cushion against payment delays. The last rating action on State of Oaxaca by Moody’s was in 2007, when it gave a Baa3 rating to an enhanced loan given by Scotiabank, also for MXP500m.