Moody's puts Yucatán a step below investment grade

Moody's puts Yucatán a step below investment grade

Debt Capital Markets Corporate & Sovereign Strategy Economy & Policy Mexico

Moody's said it has assigned a Ba1 credit rating with a stable outlook to the state of Yucatán, citing the state government's manageable debt load, reliable revenue streams and relatively high GDP growth.

The rating stands one notch below investment grade and takes into account the state's high levels of unfunded pension liabilities and the low likelihood of financial support from the federal government, Moody's said in a report.

Yucatán's financing requirements represented 1.1% of total revenues from 2014 to 2018, while net debt equaled 15.9% and debt service costs stood at 1.9%, according to Moody's.

After the state government takes on more debt in the coming months to implement the Yucatán Seguro electronic security system, its debt will likely rise to 21.2% of revenues and debt service to 2.2%, "levels that remain very manageable," Moody's added.

"Over 2019 and 2020, Moody's estimates that Yucatán will maintain moderate and stable financing requirements, equivalent on average to around 1% of its total revenues," the rating agency said.

Yucatán's pension obligations reached 172% of total revenues in 2018, which could put pressure on the state's finances in the long run, Moody's said.

The state recorded GDP growth of 3.1% in the first quarter this year and 3.7% in the fourth quarter last year, while above the national averages of 1.14% and 0.42%, respectively, Moody's said.

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